Northern Recruitment Group PLC
05 September 2007
5 September 2007
NORTHERN RECRUITMENT GROUP PLC
PRELIMINARY ANNOUNCEMENT OF RESULTS
FOR THE YEAR ENDED 30 JUNE 2007
'The results for the year are better than we anticipated at the time of our
trading statement in May, with operating profit up by 6% on 2006. Strong growth
in our core permanent recruitment businesses, and in the delivery of temporary
staff, was partially offset by continuing low activity levels at our NRG Connect
national response handling unit.'
• Revenue up 22% to £22.3m (2006: £18.3m)
• Gross profit up by £0.5m (7.5%) to £7.6m (2006: £7.1m)
o Temporary recruitment up £0.4m (16%)
o Core permanent recruitment up £0.7m (21%)
o NRG Connect down £0.6m (40%)
• Profit before tax up 4% to £2.03m (2006: £1.95m)
• Diluted earnings per share up 6% to 8.1p (2006: 7.6p)
• Ordinary dividends maintained at 7.5p per share (2006: 7.5p)
• Net cash up 8% to £5.3m (2006: £4.9m)
• Outstanding growth by NRG Scientific and NRG Technical
• Very strong progress by NRG Call Centre Solutions
• Good results from NRG Works re-branding and business focus
• NRG-led consortium has secured a preferred supplier position on a major
Government framework contract
'We have made a positive start to the current year. The market remains buoyant
in all our core business areas, and our pipeline of bids and tenders is
exceptionally strong. NRG Connect has continued to operate at very low levels
of activity in the current year to date, compared with a reasonably active
period in the first half last year. In the absence of major new project wins,
this will constrain the Company's progress in the first half, though the strong
demand we are experiencing across our other major business streams gives me
confidence in our prospects over the year as a whole.'
- Leo Finn, Chairman
ENQUIRIES:
Northern Recruitment Group Hudson Sandler
Lorna Moran, Chief Executive Nick Lyon
Tel: 0191 260 4412 Tel: 020 7796 4133
NOTE TO EDITORS
Northern Recruitment Group (NRG) is a total solutions recruitment business
focusing on recruitment and HR consultancy services. It aims to be the leading
provider of these services in all the regions where it operates.
Based in Newcastle upon Tyne, where the business was founded by Chief Executive
Lorna Moran in 1977, NRG services its clients through a network of offices
across the North East, Yorkshire and Scotland. Its NRG Connect business designs
and manages high volume national recruitment projects. Clients have the
opportunity to select full or part process: from applicant attraction and
assessment through to final job offers.
NRG services both the public and private sectors, with each accounting for
around half its business. Its dedicated NRG Public Sector division handles a
wide range of assignments from national volume contracts to both executive and
non-executive appointments for national, regional and local government bodies,
and for not-for-profit organisations in areas such as higher education and the
arts. NRG Executive provides specialist search and selection services for board
level and other senior appointments in both the public and private sectors.
NRG Professional Services provides recruitment solutions in the specialist areas
of finance, IT and human resources, covering executive, interim, permanent and
temporary appointments across those skill ranges. NRG Technical specialises in
middle management recruitment for manufacturing clients and has broadened its
specialism to support a growing demand for skilled contractors, while NRG City
is a high street brand dedicated to meeting the demand for quality support staff
including PAs, receptionists, office managers and administrators both permanent
and temporary.
NRG has significant capability to handle high volume contracts for both
permanent and temporary staff. Its specialist NRG Call Centre Solutions
business works with leading contact centres to meet their requirements for staff
both temporary and permanent, while the NRG Works flexible resourcing division
provides temporary employees for a wide range of manufacturing, engineering,
warehouse and distribution businesses.
NRG has a distinctive culture that focuses on excellent client service and on
assuring value for money through high efficiency and tight financial control.
It has been a public company since obtaining a full stock market listing in
November 1997. Its aim is to achieve continued growth for the benefit of its
shareholders and staff by building on its strong regional brand and reputation,
combined with national delivery capabilities, and by devising and implementing
innovative people solutions in partnership with its clients.
CHAIRMAN'S STATEMENT
The results for the year are better than we anticipated at the time of our
trading statement in May, with operating profit up by 6% on 2006. Strong growth
in our core permanent recruitment businesses, and in the delivery of temporary
staff, was partially offset by continuing low activity levels at our NRG Connect
national response handling unit.
Results
Revenue in the year ended 30 June 2007 increased by 22.0% to £22.3 million
(2006: £18.3 million). Revenues from temporary placements increased by 27.9% to
£17.4 million (2006: £13.6 million), while fees from permanent recruitment
increased by 4.3% to £4.9 million (2006: £4.7 million) despite a £0.6 million
(40%) reduction in turnover at NRG Connect.
Gross profit rose by 7.5% to £7.6 million (2006: £7.1 million), representing a
gross margin of 33.9% (2006: 38.5%) as a result of our changed business mix
between temporary and permanent recruitment. The net increase in gross profit
of £0.5 million comprised a £0.4 million increase in our margin from temporary
recruitment and a £0.7 million improvement in our core permanent recruitment
operations, offset by a £0.6 million reduction in the contribution of NRG
Connect. In consequence, temporary recruitment accounted for 36% (2006: 33%) of
our gross profit during the year, conventional permanent recruitment for 53%
(2006: 47%) and NRG Connect for 11% (2006: 20%).
Administrative expenses increased by 7.9% to £5.8 million (2006: £5.4 million).
The largest factor here was a £240,000 increase in payroll costs as we continued
to expand our team of experienced fee earners to keep pace with demand and to
provide additional capacity for future growth. We also incurred bad debts of
£187,000; this principally related to the appointment of administrators at a
former client in the food processing industry to which we had supplied high
volumes of temporary staff for its pre-Christmas production peak, as disclosed
in the interim report.
Operating profit increased by 6.1% to £1.8 million (2006: £1.7 million), while
financial income was 8.1% lower at £0.24 million (2006: £0.26 million). In
consequence, profit before tax increased by 4.2% to £2.03 million (2006: £1.95
million).
Diluted earnings per share were 8.1 pence (2006: 7.6 pence), an improvement of
6.4%.
Finances
The business remained healthily cash generative and we ended the year with net
cash balances of £5.3 million, compared with £4.9 million at the end of the
previous financial year, and £4.7 million at the end of the first half in
December 2006.
Dividends
The Board recommends a maintained final dividend of 5.0 pence per share (2006:
5.0 pence), making a total for the year of 7.5 pence (2006: 7.5 pence). In
making this recommendation, the Board has been mindful both of the current level
of dividend cover and of the potentially increased demand on the Company's cash
resources arising from the strong growth of its temporary recruitment business.
It remains the Board's intention in the future to pursue a progressive ordinary
dividend policy that broadly reflects the growth in the Company's earnings per
share over the medium term.
Trading highlights
The recruitment market remained strong across nearly all sectors of our business
throughout the year. Gross profit from our core permanent recruitment
operations grew by 21% overall, including outstanding performances by NRG Works
and NRG Scientific; NRG City also made very pleasing progress. We achieved a
16% increase in gross profit from temporary placements, again driven primarily
by NRG Works and NRG Scientific. The gross profit contribution of NRG Connect
was down by 40%, falling below our expectations as the result of significantly
reduced project activity, particularly in the second half. However, our ability
to trim costs in line with utilisation meant that it continued to operate
profitably and it has enjoyed excellent client retention as well as providing us
with a significant competitive edge when tendering for major national projects.
Towards the end of the year we secured a preferred supplier position on a major
national four year framework contract to supply Government departments with
temporary administrative and clerical staff by forming and leading a new
consortium, TotalNRG. This approach, which entailed NRG sourcing four other
leading regional recruitment specialists to create the consortium, enables us to
offer a unique combination of regional expertise and national project management
capabilities. The framework became active on 1 August, and, whilst it will take
several months to build business for TotalNRG, it offers significant potential
for the future. The consortium business model also has scope to assist the
development of our national business in other areas.
Lorna Moran comments in more detail on the performance of individual business
streams and offices in her Chief Executive's Review.
Outlook
We have made a positive start to the current year. The market remains buoyant
in all our core business areas, and our pipeline of bids and tenders is
exceptionally strong. We have substantially strengthened our ability to exploit
these opportunities by augmenting our team of fee-earning professional staff,
though this will be reflected in a further significant increase in payroll costs
during the year. NRG Connect has continued to operate at very low levels of
activity in the current year to date, compared with a reasonably active period
in the first half of last year. In the absence of major new project wins, this
will constrain the Company's progress in the first half, though the strong
demand we are experiencing across our other major business streams gives me
confidence in our prospects over the year as a whole.
Leo Finn
Chairman
CHIEF EXECUTIVE'S REVIEW
This year marks the 30th anniversary of NRG's establishment, and I am happy to
report that our team of professional consultants and managers has never been
stronger. This is reflected in the further strong performances of our core
permanent recruitment businesses and the substantial upturn in temporary
placements achieved during the year, partly offset by the shortage of major
project activity for NRG Connect.
Business Overview
Demand remained very strong in nearly all our main business areas throughout the
year with the exception of the very large, high volume projects handled by NRG
Connect, mainly for public sector clients. Our various divisions supply both
the public and private sectors and each sector continued to account for
approximately half of our total business, in line with our strategic objectives.
Our new consortium-based approach to handling the latest Government framework
contract further strengthens our ability to service clients on a truly national
basis, and creates a new model for the future development of our business, with
substantial additional potential. We have benefited, as planned, from our
strategic decision to address the previous decline in our temporary staffing
business by focusing on more buoyant sub-markets under a new brand and a
stronger management team.
NRG Executive (Public and Private)
Our search and selection business focusing on board level and other senior
appointments has performed very well and has a significant presence in both the
public and private sectors. Major assignments completed during the year
included the Chief Executive plus 15 board members and senior executive team for
the new Business Link North East; Head of Human Resources - House of Commons;
and an extension of our higher education portfolio with senior appointments at
both Edinburgh University and University College London. In addition, our
enlarged executive team handled national assignments for EMAP, npower,
Northgate, PD Ports, TSG and eaga. We have also filled a significant number of
positions in the buoyant social housing and local government markets.
NRG Professional Services
Our business focusing on professional management recruitment across a range of
specialist areas performed very strongly, driven in part by the excellent
progress of NRG Technical -and the NRG Scientific practice we established last
year to meet the requirements of the pharmaceutical, food, chemical and
biotechnology sectors for expert staff. Significant work was undertaken during
the year for clients including Avecia Biotechnology, Dow Chemicals and SSL
International. NRG IT, dedicated to the provision of information technology and
software specialists, had a successful year and enjoys a very strong new
business pipeline moving forwards. We have recruited additional staff to
strengthen the capabilities of NRG Practical Human Resources, focusing on
specialist HR recruitment, psychometric testing and assessment, and people
development. NRG Finance, covering not just finance director appointments but
the full range of accounting support roles, made solid progress from its
strongly established base.
NRG Call Centre Solutions
Our operation specialising in the provision of contact centre staff enjoyed
another very successful year, building on its strong relationships with major
clients including npower and Barclays. We also handled some significant senior
executive placements within the call centre market place, providing us with a
number of valuable introductions into new organisations. This has led to an
increase in the number of new business pitches we have been invited to undertake
in the current year.
NRG City
Our business specialising in the provision of high quality support staff made
excellent progress in the second half of the year, particularly in the filling
of permanent positions. The Tees Valley branch we established in the previous
year made a pleasing contribution.
NRG Works
We have fulfilled our strategic objective of substantially expanding our
revenues and profit from the provision of temporary staff. In particular, we
are pleased to have achieved all the expected benefits from the changes we made
in the prior year to our flexible resourcing division, which was placed under
strengthened management and re-branded as NRG Works. A satisfactory result was
achieved despite the bad debts we incurred in this area, principally as the
result of a business failure in food manufacturing. In addition to the food
sector, we made particularly strong progress in the packaging and engineering
industries, completing a major contract with Cummins Engines for the operation
of assessment centres and the provision of temporary staff, and also undertaking
significant work for Saft. Under the NRG Construction brand, we have also built
an important presence in the provision of specialist staff in this area for
clients in the public sector.
TotalNRG
The new TotalNRG consortium, led by NRG, brings us together with four other
leading regional recruitment specialists with the opportunity to provide
recruitment services to major Government departments under a framework contract
valued at £300 million over its four year term.
NRG Connect
The ability to handle major recruitment projects through our own process
outsourcing contact centre sets NRG apart, and has given us a significant
competitive edge in tendering for national project work. NRG Connect has a
strong list of clients, mainly from the public sector, including HM Revenue &
Customs and the Home Office, for which it handled its first major assignment
during the first half. While client retention is excellent, and our highly
flexible cost base means that the business has remained profitable, an
unexpectedly low level of major project activity throughout the second half led
to a substantial reduction in NRG Connect's revenues and profit contribution
during the year. There has been no upturn in activity during the current year
to date. However, the visibility of Connect's major project work is often no
greater than for more conventional recruitment assignments, and we have the
ability to respond to demand on very short lead times.
Regional offices
Our headquarters in Newcastle upon Tyne remained the Group's principal fee
generator and performed well across all disciplines last year, apart from the
downturn in NRG Connect and a modest reduction in the contribution from its NRG
City branch, though this established an improving trajectory in the final
quarter. The Tees Valley operation made extremely strong progress, based
largely on the rapid expansion of NRG Scientific, though NRG Finance and NRG
City also performed well; the office will relocate to larger premises in the
current year. Middlesbrough benefited from the delivery of our major Cummins
Engine contract in NRG Works, and our Yorkshire office also made satisfactory
progress. In Scotland, the strengthening of our team in Glasgow delivered some
improvement in performance there, though further efforts are required in
Edinburgh to establish critical mass in that market place.
People
We have continued to strengthen our business through training, development,
promotion and external recruitment, creating the strongest team we have ever had
in the 30-year history of NRG. Our senior executive team is working very well
together, and I am encouraged by the quality and commitment of the additional
professionals we have brought into the business over the last year. This is
reflected in the strong performances achieved by most of our business streams,
and gives us the capability to maximise the potential created by the very strong
new business pipeline we are currently handling. I am grateful to our managing
director, Therese Liddle, for her strong leadership during the year, and to
every single member of our team for their individual contributions to our
continued progress.
Prospects
The business is well balanced between the public and private sectors, and
achieving an improved mix between permanent recruitment and temporary
placements. NRG Connect, while temporarily underperforming against our targets,
has played a key role in enabling us to develop a truly national offering to our
clients. Our new consortium approach to bidding for national contracts takes
this process a stage further, creating a new business model with great potential
for further development in both the public and private sectors. With the market
remaining buoyant, and a strong new business pipeline to exploit, I look forward
to the future of NRG with confidence and enthusiasm.
Lorna Moran
Chief Executive
Income statement for year ended 30 June 2007
Note 2007 2006
£000 £000
Revenue 22,336 18,313
Cost of sales (14,751) (11,256)
Gross profit 7,585 7,057
Administrative expenses (5,787) (5,362)
Operating profit 1,798 1,695
Financial income 238 259
Profit before tax 2,036 1,954
Income tax expense (621) (623)
Profit for the year attributable to equity holders of 1,415 1,331
the parent
Basic earnings per share (pence) 2 8.1 7.6
Diluted earnings per share (pence) 2 8.1 7.6
There were no items of income or expense for the current or comparative period
other than those reported in the income statement.
Dividends
2007 2006
Interim dividend paid (pence per share) 2.5 2.5
Final dividend proposed (pence per share) 5.0 5.0
Balance sheet at 30 June 2007
Note 2007 2006
ASSETS £000 £000
Non-current assets
Property, plant and equipment 348 452
Deferred tax assets 69 73
417 525
Current assets
Trade and other receivables 3,717 3,524
Cash and cash equivalents 5,308 4,888
9,025 8,412
Total assets 9,442 8,937
LIABILITIES
Current liabilities
Trade and other payables (2,310) (2,039)
Income tax payable (241) (144)
(2,551) (2,183)
Total liabilities (2,551) (2,183)
Net assets 6,891 6,754
EQUITY
Share capital and reserves
Share capital 3 874 872
Share premium 3 719 697
Capital redemption reserve 3 43 43
Retained earnings 3 5,255 5,142
Total equity attributable to equity holders of the parent 6,891 6,754
Cash flow statement for year ended 30 June 2007
2007 2006
£000 £000
Cash flows from operating activities
Profit for the year 1,415 1,331
Adjusted for:
Depreciation 199 249
Financial income (238) (259)
Profit on sale of property, plant and equipment (3) (1)
Share-based payment expenses 18 47
Taxation 621 623
Cash flows from operating activities before working capital movements 2,012 1,990
Increase in trade and other receivables (193) (127)
Increase/(Decrease) in trade and other payables 271 (453)
Cash inflow from the operating activities 2,090 1,410
Income tax paid (529) (937)
Net cash inflow from operating activities 1,561 473
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 3 17
Interest received 238 259
Acquisition of property, plant and equipment (95) (108)
Net cash inflow from investing activities 146 168
Cash flows from financing activities
Proceeds from the issue of share capital 24 114
Dividends paid (1,311) (3,578)
Net cash outflow from financing activities (1,287) (3,464)
Net increase / (decrease) in cash and cash equivalents 420 (2,823)
Cash and cash equivalents at 1 July 2006 4,888 7,711
Cash and cash equivalents at 30 June 2007 5,308 4,888
NOTES
1) The financial information set out above does not constitute the Company's
statutory accounts for the years ended 30 June 2007 or 2006. The financial
information for 2006 is derived from the statutory accounts for 2006 which have
been delivered to the registrar of companies. The auditors have reported on the
2006 accounts; their report was (i) unqualified, (ii) did not include references
to any matters to which the auditors drew attention by way of emphasis without
qualifying their reports and (iii) did not contain statements under section 237
(2) or (3) of the Companies Act 1985. The statutory accounts for 2007 will be
finalised on the basis of the financial information presented by the Directors
in this preliminary announcement and will be delivered to the registrar of
companies in due course.
2) Earnings per share
Basic earnings per share
The calculation of basic earnings per share for the year ended 30 June 2007 was
based on profit attributable to ordinary shareholders of £1,415,000 (2006:
£1,331,000) and a weighted average number of ordinary shares outstanding during
the year ended 30 June 2007 of 17,470,448 (2006: 17,416,059), calculated as
follows:
Weighted average number of ordinary shares
2007 2006
Number Number
Issued ordinary shares at start of year 17,454,080 17,267,370
Effect of shares issued 25,743 158,064
Effect of own shares held ( 9,375) ( 9,375)
Weighted average number of ordinary shares during the year 17,470,448 17,416,059
Diluted earnings per share
The calculation of diluted earnings per share for the year ended 30 June 2007
was based on profit attributable to ordinary shareholders of £1,415,000 (2006:
£1,331,000) and a weighted average number of ordinary shares outstanding during
the year ended 30 June 2007 of 17,550,363 (2006: 17,570,760), calculated as
follows:
Weighted average number of ordinary shares (diluted)
2007 2006
Number Number
Weighted average number of ordinary shares during the year 17,470,448 17,416,059
Effect of share options on issue 79,915 154,701
Weighted average number of ordinary shares (diluted) during the year 17,550,363 17,570,760
3) Capital and reserves
Reconciliation of movement in capital and reserves
Share Share Capital Retained Total
redemption
Capital premium reserve earnings equity
£000 £000 £000 £000 £000
Balance at 1 July 2005 863 592 43 7,241 8,739
Total recognised income and expense - - - 1,331 1,331
Shares issued in the year 9 105 - - 114
Equity-settled share based payment - - - 148 148
transactions, net of tax
Dividends - - - (3,578) (3,578)
Balance at 30 June 2006 872 697 43 5,142 6,754
Balance at 1 July 2006 872 697 43 5,142 6,754
Total recognised income and expense - - - 1,415 1,415
Shares issued in the year 2 22 - - 24
Equity-settled share based payment - - - 9 9
transactions, net of tax
Dividends - - - (1,311) (1,311)
Balance at 30 June 2007 874 719 43 5,255 6,891
The aggregate current and deferred tax relating to items that are charged to
equity is £9,000, (2006: £101,000 credit).
4) Subject to shareholder approval on 16 October 2007, a final dividend of 5p
will be paid on 29 October to shareholders on the register on 5 October. The ex
dividend date is 3 October 2007.
5) The preliminary announcement was approved by the Board of Directors for
release on 5 September 2007.
6) The annual report will be sent to shareholders in due course and will be
available from the Company's registered office at 56 Grey Street, Newcastle upon
Tyne NE1 6AH
END
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