Highams Systems Services Group PLC
20 December 2007
For release 7.00am 20 December 2007
Highams Systems Services Group plc
('Highams' or 'the Group')
The AIM-quoted IT recruitment consultancy and a leading niche provider of
technology talent in the financial services industry is today pleased to
announce interim results
for the six months ended 30 September 2007
INTERIM RESULTS
For the six months ended 30 September 2007
Highlights
•Turnover of £7.06m (2006: £8.13m) reflecting the Group's increasing
emphasis on growing its higher value, higher margin revenue streams
•Move towards higher value business has seen gross margin increase to
14.5% from 13.1% in 2006, an improvement of 10.7%
•Loss before tax of £495,000 (2006: profit £25,000) reflecting Highams'
significant investment in new sales staff, London premises and overseas
expansion as part of the Group's previously announced new change programme
•Substantial investment programme being delivered - the Group has seen a
doubling in the number of sales staff and 14 new clients this financial
year.
•Interim Management Practice launched to capitalise on Highams' specialist
offering
•Expanded client base has substantially reduced Group's exposure to the
loss of any lower margin larger clients
•Highams continues to roll out its expansive new change programme with
current trading in line with management's expectations
Alan Howarth, Chairman, commented:
'As I advised at the time of our Preliminary Results, we have significantly
invested in re-energising the Highams brand and business operation through a
substantial change programme. A major part of this programme has seen us
transition from a process-oriented business model to a higher-value, niche
specialist, service oriented business model.
Our investment has included a doubling of our UK sales staff, targeted training
throughout the Group, the opening of our first London sales office and the
launch of our Interim Management Practice. Our Interim Results reflect not only
the costs of this investment but also our determined move towards higher margin
and higher value business.
This change programme has now been effected and monthly operating performance
will return to profitability in 2008 when we will begin to reap the rewards of
our investments.'
Enquiries:
Dave Pye, Chief Executive Tel: 01883 341 144
Highams Systems Services Group plc
www.highams.com
Richard Thompson Tel: 020 7149 6482
Charles Stanley Securities (Nomad)
Tarquin Edwards / Chris Steele Tel: 020 7034 4758 / 59
Adventis Financial PR
CHAIRMAN'S STATEMENT
Interim results for the six months ended 30 September 2007
Introduction
As I advised at the time of our Preliminary Results, we have significantly
invested in re-energising the Highams brand and business operation through a
substantial change programme.
A major part of this programme has seen us transition from a process-oriented
business model to a higher-value, niche specialist, service oriented business
model. This has had the benefit of helping us win higher-margin business with a
significant number of new clients, whilst enabling us to substantially reduce
our risk and dependence on a major, but low-margin client which, at September
2006, accounted for almost 20% of our gross margin and now accounts for less
than 11% of our gross margin.
Our investment has included a doubling of our UK sales staff, targeted training
throughout the Group, the opening of our first London sales office and the
launch of our Interim Management Practice. Our Interim Results reflect not only
the costs of this investment but also our determined move towards higher margin
and higher value business.
This change programme has now been effected and monthly operating performance
will return to profitability in 2008 when we will begin to reap the rewards of
our investments.
Financials
Group turnover was £7.06 million (2006: £8.13 million) reflecting the Group's
move away from high-volume, low margin business towards higher margin business.
Gross profit, although slightly down at £1.025 million (2006: £1.068 million)
represents a much improved 14.51% of turnover (2006: 13.14%). The operating loss
before interest and tax was £455,000 (2006: profit £57,000) and as outlined
above, it represents exciting investment in new initiatives and in the Group's
future success.
The Company will not be declaring an interim dividend.
Current Trading
We are experiencing a continuing heavy demand for interim, contract and
permanent staff from our insurance and financial services sector clients and the
software houses that supply systems to that sector. Demand is particularly
strong for experienced business analysts and individuals with ecommerce and web
services skills.
Outlook
We expect to see the major investments of the first half of the year start to
make an impact in the last few months of the year, though their benefit will be
more clearly evident in the coming financial year.
The changes we have effected to our management team, the significant increase in
our sales force together with our drive for high quality business gives me
reason to view the future with confidence.
Alan Howarth
Non-executive Chairman
20 December 2007
Consolidated Balance Sheet
As at 30 September 2007
30 Sept 2007 30 Sept 2006 31 Mar 2007
Unaudited Unaudited Unaudited
£'000 £'000 £'000
Assets Notes
Non-current assets
Intangible asset - Goodwill 2 1,071 1,071 1,071
Intangible asset - Computer software 13 16 10
Property, plant and equipment 24 32 27
1,108 1,119 1,108
Current assets
Trade and other receivables 2,818 3,303 2,936
Cash and cash equivalents 68 124 228
2,886 3,427 3,164
Liabilities
Current liabilities
Trade and other payables (1,564) (1,816) (1,892)
Other financial liabilities (1,136) (732) (591)
Net current assets 186 879 681
Net assets 1,294 1,998 1,789
Equity
Ordinary shares 1,594 1,594 1,594
Share premium 679 679 679
Merger reserve 90 90 90
Employee share benefit trust reserve (61) (61) (61)
Currency reserve 0 (1) 0
Retained earnings (1,008) (303) (513)
Total equity 1,294 1,998 1,789
Consolidated Income Statement
for the six months ended 30 September 6 months to 6 months to 12 months to
2007 30 Sept 2007 30 Sept 2006 31 Mar 2007
Unaudited Unaudited Unaudited
Notes £'000 £'000 £'000
Continuing operations
Revenue 7,063 8,130 16,286
Cost of sales (6,038) (7,062) (14,121)
Gross profit 1,025 1,068 2,165
Administrative expenses (1,480) (1,011) (2,285)
Operating (loss)/profit (455) 57 (120)
Finance costs (40) (32) (65)
(Loss)/profit on ordinary activities (495) 25 (185)
before taxation
Tax expense - - -
(Loss)/profit for the period attributable to (495) 25 (185)
equity shareholders
(Loss)/profit per share - basic 3 (1.56) p 0.08 p (0.58) p
Consolidated Statement of Recognised Income and Expense
for the six months ended 30 September
2007
6 months to 6 months to 12 months to
30 Sept 2007 30 Sept 2006 31 Mar 2007
Unaudited Unaudited Unaudited
£'000 £'000 £'000
(Loss)/profit for the period (495) 25 (185)
Loss on foreign currency translation - (1) -
Total recognised income and expense for the (495) 24 (185)
period attributable to equity shareholders
Consolidated Cash Flow Statement
for the six months ended 30 September 2007
6 months to 6 months to 12 months to
30 Sept 2007 30 Sept 2006 31 Mar 2007
Unaudited Unaudited Unaudited
£'000 £'000 £'000
Cash flows from operating activities
(Loss)/profit before taxation (495) 25 (185)
Adjustments for
Depreciation of tangible fixed assets 9 8 17
Depreciation of intangible assets - 7 5 11
software
Interest expense 40 32 65
Increase/(decrease) in trade and 118 (133) 234
other receivables
(Decrease) in trade and other (328) (279) (203)
payables
Exchange difference - (1) -
Cash used in operations (649) (343) (61)
Interest paid (40) (32) (65)
Income taxes paid - - -
Net cash used in operating activities (689) (375) (126)
Cash flows from investing activities
Purchase of property plant and equipment (7) - (4)
Purchase of intangible asset - software (9) (6) (6)
Net cash used in investing activities (16) (6) (10)
Cash flows from financing activities
Increase in other financial liabilities 545 432 291
Net cash from financing activities 545 432 291
Net (decrease)/increase in cash and cash (160) 51 155
equivalents for the period
Cash and cash equivalents at beginning of 228 73 73
period
Cash and cash equivalents at end of period 68 124 228
Notes to the Interim
report
1. Accounting policies
Basis of preparation
The interim financial information for the six months ended 30 September 2007
has been prepared in accordance with the accounting policies that will apply
for the year ended 31 March 2008 which will follow the International Financial
Reporting Standards (IFRS) and interpretations as endorsed by the European
Union.
The interim financial information for the six months ended 30 September 2007
does not constitute statutory accounts within the meaning of section 240 of the
Companies Act 1985. The comparatives for the full year ended 31 March 2007 are
not the company's full statutory accounts for that year. A copy of the
statutory accounts for that year has been delivered to the Registrar of
Companies. The auditors' report on those accounts was unqualified, did not
include references to any matters to which the auditors drew attention by way
of emphasis without qualifying their report and did not contain a statement
under section 237(2)-(3) of the Companies Act 1985.
First time adoption
In preparing these financial statements, the group has elected to apply the
following transitional arrangements permitted by IFRS 1 'First time adoption of
International Financial Reporting Standards':
• Business combinations: the Group has decided not to apply retrospectively the
provisions of IFRS 3, Business combinations, to business combinations that
occurred prior to 1 April 2006. The carrying amount of capitalised goodwill at
31 March 2006 that arose on business combinations accounted for using the
acquisition method under UK GAAP was frozen at this amount and tested for
impairment at 1 April 2006.
• Cumulative translation differences: the Group has taken advantage of the
permitted exemption under IFRS 1 to treat cumulative translation differences
for all foreign operations as zero at the date of transition, 1 April 2006.
Except as noted above, the following principal accounting policies have been
applied consistently in the preparation of these accounts:
Basis of consolidation
The Group financial statements consolidate the financial statements of the
Company and its subsidiary undertakings, and exclude all intra-Group
transactions and balances.
The results of subsidiary undertakings acquired are included from the date of
acquisition using the purchase method of accounting. The results of subsidiary
undertakings disposed of are included up to the date of disposal, and the net
profit or loss on disposal is calculated based on the net proceeds receivable
and the net assets at the date of disposal, including any goodwill.
Revenue recognition
Revenue represents amounts receivable for services provided during the
accounting period net of trade discounts and value added tax. Revenue in
respect of contract placements is recognised in the period in which the
contractor undertakes the work. Revenue in respect of permanent placements is
recognised in the period in which a placement commences work.
Intangible asset - Goodwill
Goodwill represents any excess of the cost of acquisition over the fair value
of the identifiable assets and liabilities acquired for acquisitions after 31
March 2006, together with goodwill recognised on transition to IFRS on 1 April
2006.
Goodwill is tested annually for impairment and is carried at cost less
accumulated impairment losses.
Property, plant and equipment depreciation
Property, plant and equipment are stated at cost net of accumulated
depreciation and any provision for impairment. Depreciation is provided at
rates calculated to write off the cost, less estimated residual value, of
property, plant and equipment over their estimated useful lives at the
following rates:
Leasehold improvements - over remaining period of lease on a straight-line
basis
Computer equipment
- 50% per annum on a straight-line basis
Furniture, fittings and
office equipment - 25% per annum on a straight-line basis
Motor vehicles - 25% per annum on a reducing balance basis
Impairment of non-financial assets
Impairment tests on intangible assets with indefinite useful economic lives are
undertaken annually on 31 March. Other non-financial assets are subject to
impairment tests whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Where the carrying value of an asset
exceeds its recoverable amount the asset is written down immediately.
Impairments are charged as an expense in the period they are recognised.
Leased assets
Rentals under operating leases are charged to the income statement on a
straight-line basis over the lease term. All of the Group's current leases are
operating leases.
Deferred taxation
Deferred tax assets and liabilities are recognised where the carrying amount of
an asset or liability in the balance sheet differs to its tax base, except for
differences arising on:
• the initial recognition of goodwill;
• goodwill for which amortisation is not tax deductible;
• the initial recognition of an asset or liability in a transaction which is
not a business combination and at the time of the transaction affects neither
accounting nor taxable profit; and
• investments in subsidiaries and jointly controlled entities where the group
is able to control the timing of the reversal of the difference and it is
probable that the difference will not reverse in the foreseeable future.
Deferred tax assets are recognised in the balance sheet only where it is
probable that taxable profit will be available against which the difference can
be utilised.
Deferred taxation is measured at the tax rates that are expected to apply in
the periods in which the asset is realised or the liability is
Foreign currency
Transactions entered into by Group entities in a currency other than the
currency of the primary economic environment in which it operates (the
'functional currency') are recorded at the rate of exchange at the time of the
transaction. Monetary assets and liabilities denominated in foreign currencies
at the balance sheet date are reported at the rates of exchange prevailing at
that date. Exchange differences arising on the retranslation of unsettled
monetary assets and liabilities are recognised immediately in the income
statement.
On consolidation the results of overseas operations are translated into
sterling at rates approximating to those ruling when the transactions took
place. All assets and liabilities of overseas operations are translated at
rates of exchange ruling on the balance sheet date. Exchange differences
arising from this policy are recognised directly in equity.
Pension costs
The Group operates a defined contribution pension scheme. The pension cost
expensed to the income statement represents contributions payable by the Group
to the pension scheme in the period.
Financial assets
The Group's financial assets comprise trade debtors, other debtors, and cash
and cash equivalents. Trade and other receivables are measured initially at
fair value and subsequently at amortised cost. Appropriate allowances for
estimated irrecoverable amounts are recognised in profit and loss when there is
objective evidence that the asset is impaired.
Financial Liabilities
The Group's financial liabilities comprise trade creditors, other creditors,
and a confidential interest bearing invoice discounting facility. All financial
liabilities are measured at amortised cost.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand. Bank overdrafts
are included within current liabilities unless there is a right of offset with
cash balances.
Employee share benefit trust
The cost of the company's shares held by the employee share benefit trust is
deducted from shareholders' funds in the company and consolidated balance
sheet. Any cash received by the employee share benefit trust on disposal of the
shares it holds is also recognised directly in shareholders' funds. Other
assets and liabilities of the employee share benefit trust, (including
borrowings) are recognised as assets and liabilities of the company. Any shares
held by the employee share benefit trust are treated as cancelled for the
purposes of calculating earnings per share.
Share-based payments
Where share options are awarded to employees, the fair value of the options at
the date of grant is charged to the income statement over the vesting period.
Non-market vesting conditions are taken into account by adjusting the number of
equity instruments expected to vest at each balance sheet date so that,
ultimately, the cumulative amount recognised over the vesting period is based
on the number of options that eventually vest. Market vesting conditions are
factored into the fair value of the options granted. As long as all other
vesting conditions are satisfied, a charge is made irrespective of whether the
market vesting conditions are satisfied. The cumulative expense is not adjusted
for failure to achieve a market vesting condition.
Where the terms and conditions of options are modified before they vest, the
increase in the fair value of the options, measured immediately before and
after the modification, is also charged to the income statement over the
remaining vesting period.
Exceptional items
Material and non-recurring items of income and expense are disclosed in the
income statement as 'Exceptional items'. Examples of items which may give rise
to disclosure as 'Exceptional items' include inter alia gains or losses on the
disposal of businesses, investments and property, plant and equipment, costs of
restructuring and reorganisation of existing businesses, integration of newly
acquired businesses, litigation settlements, and asset impairments.
2. First time adoption
The Group reported under UK GAAP in its previously published financial
statements for the year ended 31 March 2007. The tables below reconcile between
net assets and loss as reported previously under UK GAAP and those reported
under IFRS for the periods ended 31 March 2007 and 30 September 2006. A
reconciliation of net assets is also provided at 1 April 2006, being the
transition date to IFRS.
Reconciliation of loss under UK GAAP and IFRS
6 months to 12 months to
30 Sept 2006 31 Mar 2007
Note £'000 £'000
Loss reported under UK GAAP (39) (313)
Adjustment to IFRS:
Amortisation of goodwill (a) 64 128
Profit/(Loss) reported under 25 (185)
IFRS
Reconciliation of equity under UK GAAP and IFRS
As at As at As at
1 Apr 2006 30 Sept 2006 31 Mar 2007
£'000 £'000 £'000
Equity reported under UK 1,974 1,934 1,661
GAAP
Adjustment to IFRS:
Amortisation of goodwill (a) 64 128
Equity reported under IFRS 1,974 1,998 1,789
Explanation of reconciling item between UK GAAP and
IFRS
(a) From 1 April 2006, the date of transition to IFRS, goodwill is no longer
amortised and the annual goodwill expense has been removed from the income
statement for the year ended 31 March 2007 and six months ended 30 September
2006. Goodwill amortisation incurred prior to the date of transition to IFRS has
not been adjusted as advantage has been taken of the permitted exemption under
IFRS 1 not to apply IFRS 3 to business combinations occurring before the
transition date.
3. Loss per share 6 months to 6 months to 12 months to
30 Sep 2007 30 Sep 2006 31 Mar 2007
Unaudited Unaudited Unaudited
Loss Weighted Per Profit Weighted Per Loss Weighted Per
average share average share average share
number of number of number of
shares shares shares
£'000 000's p £'000 000's p £'000 000's p
(Loss)/profit for (495) 31,692 (1.56) 25 31,708 0.08 (185) 31,692 (0.58)
the financial
period
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