Interim Results
Staffline Recruitment Group plc
06 September 2006
Embargoed until 0700 Wednesday, 6 September 2006
STAFFLINE RECRUITMENT GROUP PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006
Continued strong trading and operational progress
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 2006.
Financial highlights:
• Revenue up 30% to £34.4m (2005: £26.4m)
• Operating profit up 23% to £1.2m (2005: £1.0m)
• Pre tax profit up 45% to £1.0m (2005: £0.7m)
• Basic earnings per share increased by 39% to 3.2p (2005:2.3p)
• Interim dividend of 1.0p per share declared; representing an increase of 43%
(2005: 0.7p)
• Net debt reduced by 30% to £5.8m (2005: £8.3m); interest cover increased to
5.7x (2005: 3.3x)
• Cost of funding reduced by 80 basis points to 1.2% over base (2005: 2.0%)
* All figures are stated in accordance with International Financial Reporting
Standards (IFRS)
Operational highlights:
• Continued significant growth in OnSites to 63 locations; a net increase of
21 since 30 June 2005
• A good performance from the Industrial branch network since completion
of 2005 reorganisation
• Average daily number of contractors increased by 40%
• Average number of employees increased by 8% to 205 (2005:189)
• Senior team expanded with the appointment of a new South of England Regional
Director
• Staffline became the first major labour supplier to be awarded a Gangmaster
licence
Commenting on the results, Andy Hogarth, Managing Director, said:
'I am delighted with both the strong trading performance achieved and the
significant operational progress made during the period. During July and August
we have continued to benefit from buoyant trading conditions, maintaining the
trend experienced in the first half. Levels of demand remain encouraging from
both our existing and new clients.
'We are continuing to focus on rapidly increasing our market share through both
continued organic growth and our recent senior management appointment. This
places us in an excellent position to continue our growth in the latter part of
2006 and thereafter.'
For further information, please contact: www.staffline.co.uk
Staffline Recruitment Group plc 0115 950 0885
Andy Hogarth, Managing Director 07931 175775
Carole Harvey, Finance Director 07904 262132
Smithfield 020 7360 4900
Katie Hunt/Reg Hoare
A presentation for analysts will be held at 10.15 for 10.30am 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 63 OnSite locations nationwide and also has a network of 16
industrial branches. In addition, the Group has a smaller 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).
Chairman's Statement
Introduction
I am pleased to report Staffline Recruitment Group's interim results, for the
six months ended 30 June 2006, which are well ahead of the same period last year
and in line with our expectations.
Staffline continues to specialise in the supply of temporary unskilled and
semi-skilled workers to employers in UK manufacturing and distribution
industries. The majority are supplied through our fully outsourced 'OnSite'
service managing the temporary recruitment function of our clients on their
premises. Staffline has a strong focus on the food processing sector, which
accounts for over 70% of Group turnover, and as such I am pleased to confirm
that it was the first major supplier to be awarded a licence from the Gangmaster
Licencing Authority.
Financial Results
The results for the period reflect a strong trading performance, driven
particularly by organic growth within our OnSite and Industrial branch
divisions. As a result, pre-tax profit has increased by 45% to £1.0m (2005:
£0.7m) and basic earnings per share have increased by 39% to 3.2p (2005: 2.3p).
These financial results are reported in accordance with International Financial
Reporting Standards (IFRS) which the Company adopted ahead of mandatory
requirements, as outlined in our 2005 results.
Dividends
The Group continues to be committed to a progressive dividend policy and I am
pleased to be able to confirm that the Board is declaring an interim dividend of
1.0p per share. The interim dividend is payable on 17 November 2006 to
shareholders on the register on 20 October 2006. This represents an increase of
43% from last year's interim dividend of 0.7p and follows a final dividend in
respect of the year ended 31 December 2005 of 1.2p.
Summary
We are pleased with the strong progress the Group has made during the period
and, having successfully strengthened the Group's senior operational management
team, service offering, client base and national penetration, we are confident
of continued significant growth in the future.
Derek Mapp
Chairman
6 September 2006
Managing Director's Review
I am delighted with both the strong trading performance achieved and the
significant operational progress made during the period.
This performance reflects, in particular, the strength of our OnSite service
model through which we are a valuable outsourcing partner for our customers.
These higher volume, OnSite relationships enable us to deliver a greater level
of service at a significantly lower average cost to our customer.
Our continued success is enabling us to attract some of the best talent
available in HR Industrial Resource Management and we aim to continue our growth
by hiring more people as well as continuing to promote from within. We have
hired an additional 16 people within the last twelve months and we have expanded
our senior management team with the recruitment of an experienced new Regional
Director based in the South of England. This is an area of the UK where we see
great potential. In addition we are actively seeking to expand our capabilities
in Scotland and are currently seeking to recruit staff to support this
expansion.
Strategy
Our strategy continues to be based primarily on organic growth through expansion
of the number of OnSite locations for both new and existing customers. Despite
our success in growing our business so far, we estimate that we have a share of
just 2.0% to 2.5% of the UK HR Industrial Resource Management market. As such,
there remains the opportunity for significant organic growth.
Financial Results
Turnover for the period rose by 30% to £34.4m (2005: £26.4m). The continued
successful growth of our OnSite business, which achieves lower gross margins,
albeit with lower overheads than our traditional branch based business, led to a
smaller rate of increase in gross profit of 14.3% to £6.0m (2005: £5.3m).
The strong growth in the share price during the period has led to an increased
charge in respect of share based employee remuneration, depressing the operating
margin very slightly. The benefits of the lower overheads associated with the
OnSite model, combined with lower central overhead and finance costs as a
proportion of turnover, are shown in the continued increase in net margins from
2.6% to 2.9%. This resulted in profit before tax increasing by 45% to £1.0m
(2005: £0.7m). This performance was delivered following an already strong
performance in the comparable period of the previous year when similar growth of
40% in pre-tax profit, was achieved.
These latest figures include a non-cash cost of £110,000 (2005: £30,000)
relating to the staff share based remuneration scheme.
Gross operating cash flow during the period was £1.4m but a net increase in
working capital of £0.7m meant that after loan and interest payments and capital
expenditure, the net cash movement was positive by only £0.1m. This increase in
working capital was due to a steep increase in sales experienced in the final
six weeks of the period. Our debtor days were reduced to 31 (34 at 30 June 2005)
with reduced interest costs, which despite the significant increase in sales
indicates the level of our efficiency in this area.
We have renegotiated the length and pricing of our term funding with Bank of
Scotland. The period of the term loan has been extended to 2013, reducing the
minimum annual repayment to £0.5m from £1.0m. This reduction will give us more
flexibility in managing our working capital requirements as well as allowing us
more discretion in pursuing a progressive dividend policy. In addition, we have
moved our working capital funding requirements from an invoice discounting
facility to an overdraft. Both tranches of funding benefit from a lower interest
rate, currently 1.2% over bank base rate (2005: 2.0%) with a ratchet which
adjusts the bank's margin, dependant upon the Group's future performance and
will potentially allow the margin charge to the Company to drop by a further
0.2%.
Operational Review
OnSite Division
The first six months of the year have been buoyant with no sign of the subdued
usage we experienced in the comparable period of 2005 from some of our
manufacturing clients. As previously announced a significant contract was won
with a major producer of fast moving consumer goods (FMCG) in May 2006. This
contract is now being implemented, with Staffline currently providing all
temporary recruitment services to four of the client's production sites through
two new OnSites and two existing branches.
Overall, we have won a large number of new sites, some with new clients and some
with existing clients. As a result, the current total number of OnSite locations
is 63, representing a net increase of 21 since 30 June 2005 and a net increase
of 10 since 31 December 2005. We are continuing to see strong demand for our
services in the first few weeks of the second half of the year.
Industrial Branches
Following a re-organisation towards the end of last year, resulting in a
considerably enhanced emphasis on winning new business, there has been an
increase in trading in almost all of our existing industrial branches. As part
of the re-organisation, we have closed our industrial branch in Birkenhead and
consolidated its operations into our Skelmersdale branch. This has resulted in
improved levels of business in both areas, whilst we are also benefiting from
reduced operating costs.
In addition, we are at the early stages of expanding our branch offering into a
new and complementary sector focusing on recruiting drivers within two existing
branches following the completion of a pilot scheme. We have identified driving
as a niche area which is in demand from our customer base and which, given the
licensing requirements, uses Staffline's strength in information systems and
identification checking processes. The two pilots are showing early signs of
success and we intend to continue to expand this offering to our customers.
Techsearch
Techsearch is our skilled placement brand, specialising in engineering
placements, particularly in the FMCG sectors and it represents less than 10% of
Group turnover. Following a strong first quarter, we experienced a weakening in
demand from employers in some sectors coupled with a greater resistance to
switching employer from many candidates. This saw trading results weaken
slightly in the second quarter although they have improved significantly in
recent weeks. The Group as a whole continues to benefit from Staffline's
ability, through the Techsearch offering, to provide its clients with candidates
for a broader range of positions.
Industry Background
Gangmaster Licensing Act 2004 ('the Act')
The Licensing Authority confirmed that it intends to require all labour users
involved in the early stages of food processing to comply with the requirements
of the Act and to use only labour providers who are licensed from 1 December
2006. To fail to do so will be a criminal offence.
In May 2006, Staffline became the first of the major companies providing labour
into the food production sector to be awarded a licence under the Act. This head
start over many of our competitors has allowed us to win new clients who are
keen to ensure that they comply with the Act's requirements in advance of the
December deadline. With many of our competitors still undergoing the lengthy
audit process, and some having not yet registered their intention to do so, we
hope to capitalise further on this advantage in the coming months.
The Home Office
We are seeing further increases in the levels of activity in the checking of our
contractors by the Home Office, particularly following the amount of adverse
press publicity illegal immigrants have attracted. We have also seen a large
increase in the number of contractors providing forged documentation when
attempting to register with us for work, the vast majority of whom we
successfully screen out. However, with an increased level of sophistication in
the quality of forgeries we, and indeed the Home Office, are finding it harder
to identify these.
We have continued to pass regular audits by the Immigration and Nationality
Directorate. We believe that our three stage identification and verification
process remains one of the most stringent amongst labour providers, giving our
customers additional peace of mind and protecting them from any reputational
risk.
EU Accession State Workers
We continue to see large numbers of workers arriving in the UK from EU accession
states and calculate that currently 52% of our workforce is from these
countries, compared to 28% in December 2005. There is no sign of any abatement
in the flow of immigrant labour but we are now starting to see a shortage of
further candidates with certain skills, such as butchers. This has occurred due
to a combination of greater demand from our clients, as well as greater
opportunity for these people to work in areas of continental Europe where pay
rates tend to be higher. We continue to recruit from some EU accession states,
namely Poland, Czech Republic and Slovakia which serves to maximise the
availability of these higher skilled workers. We expect that the future
accession of Romania and Bulgaria to the EU, due in January 2007, will partially
alleviate these skills shortages, subject to the Government allowing the free
flow of these workers in to the UK. We are also expanding the number of
countries in which we intend to recruit.
Health and Safety
We continue to recognise the importance of our role in ensuring we provide work
for our contractors with clients who uphold the very highest standards of Health
and Safety and have further developed our system of checks to ensure the safest
possible working environments.
Employees
Our average number of direct employees for the period rose to 205 from 189 at 30
June 2005, an increase of 8% which compares favourably with the increase in
sales of 30%.
The take up rate for the staff share option scheme (open to all employees)
continues to be high with the first tranche of options becoming available for
vesting on 8 December 2006. We remain confident that by making options available
to all members of staff we have encouraged better retention and ensured that
employees feel a key part of the success of the Company.
Current Trading and Prospects
During July and August, we have continued to benefit from buoyant trading
conditions, maintaining the trend experienced in the first half of encouraging
demand levels from both our existing and new clients.
We are continuing to focus on rapidly increasing our market share both through
continued organic growth and the recent senior management hire. This places us
in an excellent position to continue our growth in the latter part of 2006 and
thereafter.
Andy Hogarth
Managing Director
6 September 2006
Consolidated income statement
For the six months ended 30 June 2006
Note Period Period
ended ended
30 June 30 June Year ended
2006 2005 31 December
Unaudited Unaudited Audited
£'000 £'000 £'000
Continuing
operations
Sales revenue 34,384 26,364 61,479
Cost of sales (28,356) (21,092) (49,665)
-----------------------------------------------
Gross profit 6,028 5,272 11,814
Administrative
expenses (4,812) (4,281) (8,759)
-----------------------------------------------
Operating result 1,216 991 3,055
Finance costs 4 (212) (297) (573)
-----------------------------------------------
Result for the
period before
taxation 1,004 694 2,482
Tax expense 6 (338) (208) (824)
-----------------------------------------------
Net result for the
period 666 486 1,658
===============================================
Earnings per
ordinary share 7
Basic 3.2p 2.3p 8.0p
===============================================
Diluted 3.1p 2.3p 7.8p
===============================================
Consolidated statement of changes in equity
For the six months ended 30 June 2006
Share
based Profit
Share payment Share and loss
capital reserve premium account Total
£'000 £'000 £'000 £'000 £'000
At 31 December 2004 2,082 5 14,257 124 16,468
Net result for the period to 30
June 2005 - - - 486 486
Employee share based compensation - 30 - - 30
-----------------------------------------------
At 30 June 2005 2,082 35 14,257 610 16,984
Net result for the period to 31
December 2005 - - - 1,172 1,172
Employee share based compensation - 33 - - 33
Dividend paid - - - (146) (146)
-----------------------------------------------
At 31 December 2005 2,082 68 14,257 1,636 18,043
Net result for the period to 30
June 2006 - - - 666 666
Employee share based compensation - 110 - - 110
-----------------------------------------------
At 30 June 2006 2,082 178 14,257 2,302 18,819
-----------------------------------------------
Consolidated balance sheet
At 30 June 2006
At 30 June At 30 June December
2006 2005 2005
Unaudited Unaudited Audited
Note £'000 £'000 £'000
Assets
Non current
Goodwill 8 22,326 22,326 22,326
Property, plant and
equipment 9 163 150 88
-----------------------------------------------
22,489 22,476 22,414
-----------------------------------------------
Current
Trade debtors and
other receivables 10 9,645 7,481 8,663
Cash and cash
equivalents 1,389 500 552
-----------------------------------------------
11,034 7,981 9,215
-----------------------------------------------
Total assets 33,523 30,457 31,629
===============================================
Liabilities
Non current
Bank loans 12 (3,379) (3,579) (3,100)
Current
Trade and other
payables 11 (9,721) (8,736) (8,720)
Bank loans 12 (450) (950) (950)
Current tax (1,154) (208) (816)
-----------------------------------------------
(11,325) (9,894) (10,486)
-----------------------------------------------
Total liabilities (14,704) (13,473) (13,586)
===============================================
Equity
Share capital 14 (2,082) (2,082) (2,082)
Share premium (14,257) (14,257) (14,257)
Share based payment (178) (35) (68)
reserve
Profit and loss
account (2,302) (610) (1,636)
-----------------------------------------------
Total equity (18,819) (16,984) (18,043)
===============================================
Total equity and
liabilities (33,523) (30,457) (31,629)
===============================================
Consolidated cash flow statement
For the six months ended 30 June 2006
Note 6 months 6 months Year ended 31
ended 30 June ended 30 June December
2006 2005 2005
Unaudited Unaudited Audited
£'000 £'000 £'000
Cash flows from operating
activities
Operating result 1,216 991 3,055
Adjustments for:
Depreciation of
property, plant and
equipment 9 27 147 305
---------------------------------------------
1,243 1,138 3,360
Change in trade and
other receivables 10 (982) 420 (762)
Change in trade and
other payables 11 271 (393) 726
---------------------------------------------
Cash generated from
operations 532 1,165 3,324
Interest paid (187) (272) (523)
Employee equity
settled share
options 110 30 63
Taxes paid - (282) (290)
Net cash inflow
from operating
activities 455 641 2,574
=============================================
Cash flows from investing
activities
Purchases of
property, plant and
equipment 9 (102) (12) (108)
---------------------------------------------
Net cash used in
investing
activities (102) (12) (108)
=============================================
Cash flows from financing
activities
Increase/(decrease)
of loans 484 (500) (2,139)
Dividends paid - - (146)
---------------------------------------------
Net cash from/(used
in) financing
activities 484 (500) (2,285)
Net increase in
cash and cash
equivalents 837 129 181
Cash and cash
equivalents at
beginning of period 552 371 371
---------------------------------------------
Cash and cash
equivalents at end
of period 1,389 500 552
=============================================
Notes to the interim report
For the six months ended 30 June 2006
1 General information
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 2006 (including
the comparatives for the year ended 31 December 2005 and 30 June 2005) were
approved by the board of directors on 5 September 2006. Under the Security
Regulations Act of the EU, amendments to the financial statements are not
permitted after they have been approved.
2 Accounting policies
Basis of preparation
The interim financial report has been prepared under the historical cost
convention and in accordance with International Accounting Standard 34 Interim
Financial Reporting.
Staffline Recruitment Group plc adopted IFRS for the first time in its
consolidated financial statements for the year ended 31 December 2005.
The accounting policies and methods are the same as in the most recent annual
financial statements and are set out below.
Consolidation and investments in subsidiaries
Subsidiaries are all entities over which the Group has the power to control the
financial and operating policies. The Group obtains and exercises control
through voting rights. The consolidated financial statements of the Group
incorporate the financial statements of the parent company as well as those
entities controlled by the Group by full consolidation.
In addition, acquired subsidiaries are subject to application of the purchase
method. This involves the revaluation at fair value of all identifiable assets
and liabilities, including contingent liabilities of the subsidiary, at the
acquisition date, regardless of whether or not they were recorded in the
financial statements of the subsidiary prior to acquisition. On initial
recognition, the assets and liabilities of the subsidiary are included in the
consolidated balance sheet at their revalued amounts, which are also used as the
bases for subsequent measurement in accordance with the Group accounting
policies. Goodwill represents the excess of acquisition cost over the fair value
of the Group's share of the identifiable net assets of the acquired subsidiary
at the date of acquisition.
Material intra-group balances and transactions, and any unrealised gains or
losses arising from intra-group transactions, are eliminated in preparing the
consolidated financial statements.
Income recognition
Income for temporary contractors is recognised on receipt of contractor
timesheets, which are signed by the customer authorising invoices to be raised.
Income from permanent placements is recognised when the candidates start work.
Turnover represents sales to outside customers at invoiced amounts less value
added tax.
Goodwill
Goodwill is tested annually for impairment and carried at cost less accumulated
impairment losses.
Impairment
The Group's goodwill and property, plant and equipment are subject to impairment
testing.
For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (cash-generating
units). As a result, some assets are tested individually for impairment and some
are tested at cash-generating unit level. Goodwill is allocated to those
cash-generating units that are expected to benefit from synergies of the related
business combination and represent the lowest level within the Group at which
management controls the related cash flows.
Individual intangible assets or cash-generating units that include goodwill with
an indefinite useful life are tested for impairment at least annually. All other
individual assets or cash-generating units are tested for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable.
An impairment loss is recognised for the amount by which the asset's or
cash-generating unit's carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of fair value, reflecting market conditions
less costs to sell and value in use, based on an internal discounted cash flow
evaluation. Impairment losses recognised for cash-generating units, to which
goodwill has been allocated, are credited initially to the carrying amount of
goodwill. Any remaining impairment loss is charged pro rata to the other assets
in the cash generating unit. With the exception of goodwill, all assets are
subsequently reassessed for indications that an impairment loss previously
recognised may no longer exist.
Property, plant and equipment
Computer equipment and fixtures and fittings are carried at acquisition cost
less subsequent depreciation and impairment losses. Depreciation is charged on
these assets on a straight line basis over the estimated useful economic life of
each asset.
The useful lives of property, plant and equipment can be summarised as follows:
Computer equipment 3 years
Fixtures and fittings 3 years
Leases
In accordance with IAS 17 (revised 2003), the economic ownership of a leased
asset is transferred to the lessee if the lessee bears substantially all the
risks and rewards related to the ownership of the leased asset. The related
asset is recognised at the time of inception of the lease at the fair value of
the leased asset or, if lower, the present value of the lease payments plus
incidental payments, if any, to be borne by the lessee. A corresponding amount
is recognised as a finance leasing liability, irrespective of whether some of
these lease payments are payable up-front at the date of inception of the lease.
Subsequent accounting for assets held under finance lease agreements, i.e.
depreciation methods and useful lives, correspond to those applied to comparable
acquired assets. The corresponding finance leasing liability is reduced by lease
payments less finance charges, which are expensed to finance costs. Finance
charges represent a constant periodic rate of interest on the outstanding
balance of the finance lease liability.
All other leases are treated as operating leases. Payments on operating lease
agreements are recognised as an expense on a straight-line basis. Associated
costs, such as maintenance and insurance, are expensed as incurred. The Group
does not act as a lessor.
Taxation
Current income tax assets and/or liabilities comprise those obligations to, or
claims from, fiscal authorities relating to the current or prior reporting
period, that are unpaid at the balance sheet date. They are calculated according
to the tax rates and tax laws applicable to the fiscal periods to which they
relate, based on the taxable profit for the year.
Deferred income taxes are calculated using the liability method on temporary
differences. This involves the comparison of the carrying amounts of assets and
liabilities in the consolidated financial statements with their respective tax
bases. However, in accordance with the rules set out in IAS 12, no deferred
taxes are recognised in conjunction with goodwill. This applies also to
temporary differences associated with shares in subsidiaries if reversal of
these temporary differences can be controlled by the Group and it is probable
that reversal will not occur in the foreseeable future. In addition, tax losses
available to be carried forward as well as other income tax credits to the Group
are assessed for recognition as deferred tax assets.
Deferred tax liabilities are always provided for in full. Deferred tax assets
are recognised to the extent that it is probable that they will be able to be
offset against future taxable income. Deferred tax assets and liabilities are
calculated, without discounting, at tax rates that are expected to apply to
their respective period of realisation, provided they are enacted or
substantively enacted at the balance sheet date.
Most changes in deferred tax assets or liabilities are recognised as a component
of tax expense in the income statement. Only changes in deferred tax assets or
liabilities that relate to a change in value of assets or liabilities that are
charged directly to equity are charged or credited directly to equity.
Pensions
Pensions to employees are provided through defined contributions to individual
personal pension plans. A defined contribution plan is a pension plan under
which the Group pays fixed contributions into an independent entity. The Group
has no legal or constructive obligations to pay further contributions after
payment of the fixed contribution.
The contributions recognised in respect of personal pension plans are expensed
as they fall due. Liabilities and assets may be recognised if underpayment or
prepayment has occurred and are included in current liabilities or current
assets as they are normally of a short term nature.
Financial assets
The Group's financial assets include cash and trade receivables.
All financial assets are recognised on their settlement date. All financial
assets are initially recognised at fair value, plus transaction costs.
Interest and other cash flows resulting from holding financial assets are
recognised in profit or loss when received, regardless of how the related
carrying amount of financial assets is measured.
Trade receivables are provided against when objective evidence is received that
the Group will not be able to collect all amounts due to it in accordance with
the original terms of the receivables. The amount of the write-down is
determined as the difference between the assets's carrying amount and the
present value of estimated future cash flows.
Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand as well as short term
highly liquid investments such as money market instruments and bank deposits.
Equity
Share capital is determined using the nominal value of shares that have been
issued.
The share premium account represents premiums received on the initial issuing of
the share capital. Any transaction costs associated with the issuing of shares
are deducted from share premium, net of any related income tax benefits.
Retained earnings include all current and prior period results as disclosed in
the income statement.
Share based employee remuneration
All share-based payment arrangements are recognised in the consolidated
financial statements. The Group operates equity-settled share-based remuneration
plans for remuneration of its employees.
All employee services received in exchange for the grant of any share-based
remuneration are measured at their fair values. These are indirectly determined
by reference to the fair value of the share options awarded. Their value is
appraised at the grant date and excludes the impact of any non-market vesting
conditions (for example, profitability and sales growth targets).
All share-based remuneration is ultimately recognised as an expense in profit or
loss with a corresponding credit to the share based payment reserve, net of
deferred tax where applicable. If vesting periods or other vesting conditions
apply, the expense is allocated over the vesting period, based on the best
available estimate of the number of share options expected to vest. Non-market
vesting conditions are included in assumptions about the number of options that
are expected to become exercisable. Estimates are subsequently revised, if there
is any indication that the number of share options expected to vest differs from
previous estimates. No adjustment is made to the expense recognised in prior
periods if fewer share options ultimately are exercised than originally
estimated.
Upon exercise of share options, the proceeds received net of any directly
attributable transaction costs up to the nominal value of the shares issued are
allocated to share capital with any excess being recorded as share premium.
Financial liabilities
The Group's financial liabilities include bank loans, an invoice discounting
loan and trade and other payables.
Financial liabilities are recognised when the Group becomes a party to the
contractual agreements of the instrument. All interest related charges are
recognised as an expense in 'finance cost' in the income statement.
Bank loans are raised for support of long term funding of the Group's
operations. They are recognised at proceeds received, net of direct issue costs.
Finance charges, including premiums payable on settlement or redemption and
direct issue costs, are charged to profit or loss on an accruals basis using the
effective interest method and are added to the carrying amount of the instrument
to the extent that they are not settled in the period in which they arise.
Trade payables are recognised initially at their nominal value and subsequently
measured at amortised cost less settlement payments.
Dividend distributions to shareholders are included in 'other short term
financial liabilities' when the dividends are approved by the shareholders'
meeting.
Other provisions, contingent liabilities and contingent assets
Other provisions are recognised when present obligations will probably lead to
an outflow of economic resources from the Group and they can be estimated
reliably. Timing or amount of the outflow may still be uncertain. A present
obligation arises from the presence of a legal or constructive commitment that
has resulted from past events, for example, legal disputes or onerous contracts.
Provisions are measured at the estimated expenditure required to settle the
present obligation, based on the most reliable evidence available at the balance
sheet date, including the risks and uncertainties associated with the present
obligation. Any reimbursement expected to be received in the course of
settlement of the present obligation is recognised, if virtually certain as a
separate asset, not exceeding the amount of the related provision. Where there
are a number of similar obligations, the likelihood that an outflow will be
required in settlement is determined by considering the class of obligations as
a whole. In addition, long term provisions are discounted to their present
values, where time value of money is material.
All provisions are reviewed at each balance sheet date and adjusted to reflect
the current best estimate.
In those cases where the possible outflow of economic resource as a result of
present obligations is considered improbable or remote, or the amount to be
provided for cannot be measured reliably, no liability is recognised in the
consolidated balance sheet.
Probable inflows of economic benefits to the Group that do not yet meet the
recognition criteria of an asset are considered contingent assets and therefore
not recognised.
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 are 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 Finance costs
6 months 6 months Year ended
ended 30 June ended 30 June 31 December
2006 2005 2005
£'000 £'000 £'000
Interest
payable on
bank loans
and overdraft 212 297 573
-----------------------------------------------------------
212 297 573
===========================================================
5 Employees remuneration
Employee benefits expense
Expense recognised for employee benefits is analysed below:
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2006 2005 2005
£'000 £'000 £'000
Wages and salaries 2,957 2,616 5,361
Social security costs 317 279 570
Other pension costs -
defined contribution plans 42 31 62
-----------------------------------------------
3,316 2,926 5,993
===============================================
Number Number Number
The average number of persons
(including directors)
employed by the Group
during the period was: 205 189 188
===============================================
Share-based employee remuneration
As at 30 June 2006 the Group operated a share based payment scheme for employee
remuneration.
The share option scheme is available to all full time members of staff, except
for two of the executive directors, Andy Hogarth and Marshall Evans, subject to
the rules of the scheme, the key points of which are as follows:
• only staff with in excess of six months service are eligible;
• the number of options granted are a factor of length of service and current
salary;
• options are exercisable between two and seven years of being granted;
• except in certain limited circumstances all options lapse if an employee leaves
the Group; and
• exercise of options is not subject to any specific performance criteria.
The share options for Carole Harvey have different conditions as detailed below.
Directors' share options
1 January 2006 Granted Lapsed/exercised 30 June 2006 Exercise price
------------------------------------------------------------------------------------
C Harvey 100,000 Nil Nil 100,000 105.5p
These share options have a performance condition such that the average share
price of the Company must achieve 158.25p for 20 consecutive days during the
measurement period. The condition can be satisfied any time during the period
from the date of grant (6 October 2005) up to 21 Days after announcement of the
results for the year ended 31 December 2008, with a long stop date of 1 May
2009. The share options can be exercised between three and seven years of being
granted.
All share based employee remuneration will be settled in equity. The Group has
no legal or constructive obligation to repurchase or settle the options in cash.
Share options and weighted average exercise price are as follows for the
reporting periods presented:
30 June 2006 30 June 2005 31 December 2005
Number Weighted Number Weighted Number Weighted
average average average
exercise exercise exercise
price price price
(pence) (pence) (pence)
Outstanding
at start of
period 687,330 88 499,205 80 499,205 80
Granted 96,215 130 104,184 107.5 310,331 100
Lapsed (26,450) (85) (47,637) 80 (122,206) (86)
-------------------------------------------------------------------
Outstanding
at end of
period 757,095 93 555,752 85 687,330 88
===================================================================
The Group has the following outstanding share options and exercise prices:
30 June 2006 30 June 2005 31 December 2005
Number Weighted Weighted Number Weighted Weighted Number Weighted Weighted
average average average average average average
exercise contractual exercise contractual exercise contractual
price life price life price life
(pence) (months) (pence) (months) (pence) (months)
Exercise
date:
2006 (up
to 2011) 396,742 80 5 451,568 80 17 513,822 85 12
2007 (up
to 2012) 264,138 100 19 104,184 107.5 23 173,508 97 22
2008 (up
to 2013) 96,215 130 23 - - - - - -
No options were exercisable at 30 June 2006, 31 December 2005 or 30 June 2005.
Share options are exercisable between values of 80p and 156.25p.
The fair value of options granted was determined using the Black-Scholes
valuation model. Significant inputs into the calculations were:
• weighted average share price of 127.5 pence
• exercise prices as detailed above
• 10% volatility based on expected share price
• a risk free interest rate of 4.5%.
• all options are assumed to vest after two years from the date of grant of the
options
In total £110,000 of employee remuneration expense has been included in the
consolidated income statement to 30 June 2006 (31 December 2005: £63,000 and 30
June 2005: £30,000) which gave rise to the share based payment reserve. No
liabilities were recognised due to share based payment transactions.
6 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:
6 months 6 months Year ended
ended 30 June ended 30 June 31 December
2006 2005 2005
£'000 £'000 £'000
Result for the period
before tax 1,004 694 2,482
Tax rate 30% 30% 30%
==================================================
Expected tax expense 301 208 744
Adjustment for non-deductible
expenses relating to short
term timing differences (18) - 48
Other non-deductible
expenses 51 - 24
Adjustment in respect of
prior periods 4 - 8
--------------------------------------------------
Actual tax expense 338 208 824
==================================================
Comprising:
Current tax expense 338 208 824
338 208 824
==================================================
There is no tax expense or credit in relation to the share based payment reserve
credited to equity.
7 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
6 months 6 months Year ended 6 months 6 months Year ended
ended 30 ended 30 31 December ended 30 ended 30 31 December
June 2006 June 2005 2005 June 2006 June 2005 2005
Earnings
(£'000) 666 486 1,658 666 486 1,658
============================================================================
Weighted
average
number of
shares 20,824,463 20,824,463 20,824,463 21,425,328 20,939,980 21,311,781
============================================================================
Earnings
per share
(pence) 3.2p 2.3p 8.0p 3.1p 2.3p 7.8p
============================================================================
The weighted average number of shares has increased by 600,865 (year ended 31
December 2005: 462,318 and period ended 30 June 2005: 115,517) shares to take
account of all dilutive potential ordinary shares that could be issued under the
share option scheme.
Staffline Recruitment Group plc paid a final dividend of £250,000 as proposed in
the annual report for the year ended 31 December 2005 on the 4 July 2006. An
interim dividend of £208,000 has been proposed (2005: £146,000) but has not been
accrued within these financial statements. This represents a payment of 1.0
pence (2005: 0.7 pence) per share.
8 Goodwill
Goodwill
£'000
Gross carrying amount and net book value at 30 June 2005, 31 December
2005 and 30 June 2006 22,326
========
Goodwill above relates to the following cash generating units:
Date of acquisition Original cost
£'000
Staffline Recruitment Limited 8 December 2004 22,326
==========
Goodwill arising on consolidation represents the excess of the fair value of the
consideration given over the fair value of the identifiable net assets acquired
is capitalised and is tested annually for impairment. The directors do not
consider that there were any material intangible assets that should be
separately recognised at the date of acquisition.
The recoverable amount for Staffline Recruitment Limited was determined based on
a value-in-use calculation, covering a detailed three year forecast, followed by
an extrapolation of expected cash flow at a growth rate of 5%, which represents
a conservative long term average growth rate and a discount rate of 7%.
Management's key assumptions for Staffline Recruitment Limited include
assumptions that there will be no significant changes in the business and that
turnover growth will not exceed historic growth levels. Management have
considered internal and external market data in setting their assumptions.
Apart from the considerations described in determining the value-in-use of the
cash generating unit above, the Group management is not currently aware of any
other probable changes that would necessitate changes in its key estimates.
9 Property, plant and equipment
Group Computer Fixtures and
equipment fittings Total
£'000 £'000 £'000
Gross carrying amount
At 1 January 2006 1,321 95 1,416
Additions 53 49 102
At 30 June 2006 1,374 144 1,518
=============================================
Depreciation and impairment
At 1 January 2006 1,233 95 1,328
Provided in the period 22 5 27
At 30 June 2006 1,255 100 1,355
=============================================
Net book amount at 30
June 2006 119 44 163
=============================================
Net book amount at 31
December 2005 88 - 88
=============================================
Net book amount at 30
June 2005 150 - 150
=============================================
All assets stated above are secured against bank loans outstanding at the year
end.
10 Trade and other receivables
At 30 At 30 At
June June 31 December
2006 2005 2005
£'000 £'000 £'000
Trade and other receivables, gross
Impairment of trade and other 9,654 7,490 8,672
receivables (9) (9) (9)
Trade and other receivables, net 9,645 7,481 8,663
==============================================
Trade and other receivables are usually due within 14 - 30 days and do not bear
any effective interest rate. All trade receivables are subject to credit risk
exposure. However, the Group does not identify specific concentrations of credit
risk with regards to trade and other receivables as the amounts recognised
represent a large number of receivables from various customers.
The fair value of these short term financial assets is not individually
determined as the carrying amount is a reasonable approximation of fair value.
11 Trade and other payables
At 30 At 30 At 31
June June December
2006 2005 2005
£'000 £'000 £'000
Trade and other payables 6,533 4,663 6,262
Invoice discounting liability 3,188 4,073 2,458
9,721 8,736 8,720
==============================================
The invoice discounting facility included above is secured on the trade debtors
of the Group and bears interest at commercial rates.
The fair value of trade and other payables has not been disclosed as, due to
their short duration, management considers the carrying amounts recognised in
the balance sheet to be a reasonable approximation of their fair value.
12 Bank loans
Bank loans are repayable as follows:
At 30 At 30 At 31
June June December
2006 2005 2005
£'000 £'000 £'000
In one year or less 500 1,000 1,000
In more than one year but not more than
two years 500 1,000 1,000
In more than two years but not more
than three years 500 1,000 1,000
In more than three years but not more
than four years 500 1,000 1,000
In more than four years but not more
than five years 500 750 250
In more than five years 1,500 - -
=========================================
4,000 4,750 4,250
Debt issue costs (171) (221) (200)
=========================================
3,829 4,529 4,050
Split:
Current liabilities - bank loans (450) (950) (950)
Non current liabilities - bank loans 3,379 3,579 3,100
==============================================
Bank loans are secured by a debenture over all the assets of the Group.
The bank loan is repayable in equal quarterly instalments of £125,000 (£250,000
at 31 December 2005 and 30 June 2005). Interest accrues on the loan at 1.2% (2%
at 31 December 2005 and 30 June 2005) above base rate. The bank loans contain
various covenants which, if breached, could lead to the loan becoming payable on
demand. The covenants have all been satisfied to date.
On the basis of discounting the future loan repayments at a rate of 5% the
theoretical fair value of the bank loan is £3,249,000 at 30 June 2006 (31
December 2005 £3,875,000 and 30 June 2005 £3,853,000). Fair values of the bank
loans have been determined by calculating the present values at the balance
sheet date of the future cashflows, using fixed effective market interest rates
available to the Group. No fair value charges have been included in the income
statement for the period as financial liabilities are carried at amortised cost
in the balance sheet.
13 Deferred tax assets and liabilities
There are no material deferred tax assets or liabilities arising from temporary
differences at 30 June 2006, 31 December 2005 or 30 June 2005.
14 Share capital
At 30 At 30 At 31
June June December
2006 2005 2005
£'000 £'000 £'000
Authorised
30,000,000 ordinary 10p shares 3,000 3,000 3,000
50,000 redeemable £1 shares 50 50 50
3,050 3,050 3,050
=============================================
Allotted, issued and fully paid
20,824,463 ordinary 10p shares 2,082 2,082 2,082
=============================================
Ordinary 10p shares Redeemable £1 shares
At 30 June At At 30 June At 30 At 31 At 30
2006 31 December 2005 June December June
2005 2006 2005 2005
Shares
issued
and fully
paid at the
beginning
of the year 20,824,463 20,824,463 20,824,463 - - -
Issued
during the
year - - - - - -
---------------------------------------------------------------------
Shares
issued
and fully
paid 20,824,463 20,824,463 20,824,463 - - -
Shares
authorised
but
unissued 9,175,537 9,175,537 9,175,537 - - -
---------------------------------------------------------------------
Total
equity
shares
authorised
at
31 December 30,000,000 30,000,000 30,000,000 - - -
----------------------------------------------------------------------
All ordinary shares have the same rights and there are no restrictions on the
distribution of dividends or repayment of capital.
15 Related party transactions
The only related parties are the Group's directors and others as described
below.
Transactions with Group directors
The Group directors' personal remuneration includes the following expenses:
6 months ended 30 6 months ended 30 Year ended 31
June 2006 June 2005 December 2005
£'000 £'000 £'000
Short-term employee
benefits:
Salaries 205 167 352
Social
security costs 23 18 43
Post employment
benefits
relating to
defined
contribution
pension
schemes 14 12 20
=========================================================
242 197 415
=========================================================
16 Operating leases
The Group's minimum operating lease payments for the full remaining lives of the
leases are as follows:
30 June 2006 30 June 2005 31 December 2005
Land and buildings Land and buildings Land and buildings
£'000 £'000 £'000
In one year or
less 288 41 288
Between one and
five years 481 209 576
In five years
or more 53 52 76
822 302 940
================================================================
Lease payments recognised as an expense during the six months ended 30 June 2006
amount to £206,000 (period ended 31 December 2005 : £322,000 and 30 June 2005 :
£200,000).
Operating lease agreements do not contain any contingent rent clauses. None of
the operating lease agreements contains renewal or purchase options or
escalation clauses or any restrictions regarding dividends, future leasing or
additional debt.
17 Risk management objectives and policies
The Group is exposed to a variety of financial risks which result from both its
operating and investing activities. The Group's risk management is coordinated
at its headquarters, in close co-operation with the board of directors, and
focuses on actively securing the Group's short to medium term cash flows by
minimising the exposure to financial markets.
Staffline Recruitment Group plc does not actively engage in the trading of
financial assets for speculative purposes nor does it write options. The most
significant financial risks to which the Group is exposed are described below:
Credit risk
Generally, the maximum credit risk exposure of financial assets is the carrying
amount of the financial assets as shown on the face of the balance sheet (or in
the detailed analysis provided in the notes to the financial statements). Credit
risk, therefore, is only disclosed in circumstances where the maximum potential
loss differs significantly from the financial asset's carrying amount.
The Group's trade and other receivables are actively monitored to avoid
significant concentrations of credit risk.
The Group has adopted a policy of careful monitoring with customers who lack an
appropriate credit history.
Cash flow and fair value interest rate risks
The Group seeks to manage financial risks to ensure sufficient liquidity is
available to meet foreseeable needs and to invest cash assets safely and
profitably. Short term flexibility was achieved by the use of an invoice
discounting facility, which provided 85% of eligible debtors up to a maximum of
£6,000,000. This facility has been replaced by an overdraft facility with effect
from July 2006.
All financial liabilities of the Group are subject to floating interest rates.
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