Staffline Recruitment Group plc
03 March 2008
Embargoed until 0700 Monday, 3 March 2008
STAFFLINE RECRUITMENT GROUP PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007
Third consecutive year of strong profit and dividend growth since admission to
AIM
Staffline Recruitment Group plc ('Staffline' or 'the Group'), a leading provider
of recruitment and outsourced human resource services to industry, today
announces its preliminary results for the year ended 31 December 2007.
Financial highlights:
• Revenues up 43% to £119.9m (2006: £84.1m)
• Operating profit up 29% to £4.9m (2006:£3.8m)
• Profit before tax up 30% to £4.4m (2006:£3.4m)
• Basic earnings per share up 26% to 14.2p (2006: 11.3p)
• Total dividend up 41% to 3.8p (2006: 2.7p)
• Net debt maintained at £6.3m (2006: £6.3m) after £2.0m acquisition costs
• Net current assets rose by £1.4m to £2.0m
• Gearing fell to 28% (2006: 31%)
• Cost of funding reduced to 1% over base rate (2006: 1.2% over Base Rate).
Operational highlights:
• Continued significant growth in OnSites:
- up by 30 during the reporting period from 71 to 101.
• Onsite Partnership Limited ('OSP') has performed as expected following integration
into the Group
• Continuing expansion of client base
• Staffline branded branch network had a successful year with all branches operating
profitably at the year end
• Techsearch had an improved performance
Current trading and prospects:
• Trading for the first eight weeks of 2008 has been ahead of the same period last
year, in line with our expectations
• 2008 will benefit further from recent OnSite branch openings, the successful
integration of OSP and our strong exposure to the resilient food sector
Commenting on the results, Andy Hogarth, Managing Director, said:
'I am pleased to be able to report the third consecutive year of strong profit
and dividend growth since our admission to AIM and that trading for the first
eight weeks of 2008 has been ahead of the same period last year, in line with
our expectations
'Whilst mindful of the potential slow down in the economy, we are confident that
the successful growth of our OnSite contract base, together with our broad
exposure to the food sector, will allow us to continue our rapid organic
expansion. Indeed, we anticipate that any prolonged downturn will provide
additional opportunities for us, as clients seek further operating efficiencies.
'We are, therefore, confident that the Group will continue to make progress in
the current year 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
Altium
Phil Adams / Paul Lines 0161 831 9133
Smithfield
Katie Hunt / Miranda Good / Rebecca Whitehead 020 7360 4900
About Staffline
Staffline Recruitment Group plc's main business is as a specialist supplier of
'blue collar' temporary and contract staff to industry. It provides a fully
outsourced service, managing the temporary recruitment function of its clients
on their premises, at 101 OnSite locations nationwide and also has a network of
17 industrial branches. The Group, which is managed from the head office in
Nottingham, was founded in 1986 and was admitted to AIM in December 2004
(Ticker: STAF.L).
Print resolution images are available for the media to view and download from
www.vismedia.co.uk
Introduction
Staffline continues to specialise in the provision of skilled and semi skilled
workers to UK industry. We have deliberately focussed on the food processing
sector, which represents 60% of our total turnover, as this sector is most
likely to be resilient throughout the economic cycle and, due to the perishable
nature of the products, production remains predominantly UK based. Our largest
area of activity is our OnSite outsourced operation, representing 73% of sales,
through which we are contracted to recruit and manage temporary workers from
bases within the clients' premises.
The Year in Review
We continued to experience increased demand for our services from both existing
and new clients, with sales increasing by 43% during the year. The total number
of OnSite locations has increased to 101, up from 33 at the time of flotation 3
years ago, of which 30 were added during the reporting period. Profits have also
continued to grow, by 30% in the year, to £4.4m before tax.
In March 2007 we made our first acquisition, Onsite Partnership Ltd ('OSP'), for
an initial consideration of £2m. This business has now been fully integrated
into the Group and has performed as expected.
Dividends
The directors have recommended an increase in the final dividend to 2.5p (2006:
1.7p), representing an increase of 47%. This increase reflects both our
increased profitability as well as our commitment to implementing our
progressive dividend policy. Subject to shareholder approval, the final dividend
will be paid on 4 July 2008 to shareholders on the register on 6 June 2008.
Together with the interim dividend of 1.3p (2006: 1.0p), which was paid on 16
November 2007, the total dividend for the year will increase by 41% to 3.8p
(2006: 2.7p).
Our Staff
The Group's continued success is only possible due to the commitment and effort
of our staff, who consistently provide exceptional levels of service to our
clients. On behalf of shareholders and the Board, I would like to thank our
employees for their hard work, dedication and enthusiasm which have made 2007
another successful year for the Group. In recognition of our growth we have
continued to strengthen our management team by making a number of senior
regional appointments. We continue to incentivise all our permanent staff
through the issue of share options which helps maintain low staff turnover
compared to others in our industry.
Summary
I am pleased to be able to report the third consecutive year of strong profit
and dividend growth since our admission to AIM. The considerable expansion of
the Group's client base during the year leaves it well placed to further develop
its national presence and continue to grow in 2008.
Derek Mapp
3 March 2008
Results
Revenues for the year rose by 43%, to £119.9m (2006: £84.1m) driven by strong
demand for our services from both new and existing clients. The successful
growth of our OnSite business, which achieves lower gross margins on higher
volumes, resulted in an expected slower rate of growth in gross profit across
the Group. In addition we made a material investment in IT systems during the
year which will improve operating efficiency in future periods. Operating profit
increased by 29% to £4.9m (2006: £3.8m).
Following the acquisition of OSP in March 2007, and a number of bank base rate
rises, finance charges have increased by 24% to £0.5m (2006: £0.4m). However,
our strong growth in operating profit has meant that we have continued to
improve interest cover, which has now reached a comfortable 9.9 times (2006: 9.5
times).
Profit before tax increased by 30% to £4.4m, (2006: £3.4m), and profit after tax
increased by 28% to £3.0m (2006: £2.3m), giving a 26% increase in basic earnings
per share to 14.2p (2006: 11.3p).
Post tax cash generation during the year has been extremely strong, reflecting
our collaborative approach in partnership with our clients. In addition, cash
flow benefited by £0.2m from the issue of new shares following their sale by
members of the staff share option scheme and a further £0.2m from the sale and
leaseback of our new purpose built Head Office in Nottingham.
We borrowed an additional £2.0m from our bankers in order to finance the OSP
acquisition but ended the year with no increase in our net debt, a substantial
underlying improvement.
The Group balance sheet has also strengthened considerably during the year; net
current assets rose by £1.4m to £2.0m and gearing fell to 28% (2006: 31%).
Reduced levels of debt have resulted in improved terms from our bankers. We
currently pay interest at 1% over base rate for all our borrowing (2006: 1.2%
over base rate).
The value of fixed assets rose considerably during the year, largely
attributable to the freehold of the OSP office transferred following the
acquisition. This was independently valued at £0.6m in March 2007. We have also
continued to invest in our IT infrastructure during the year, upgrading our
disaster recovery processes as well as making initial investment in new web
based systems which will reduce operating costs.
Strategy
Our strategy continues to be to grow the Group organically by expanding the
number of OnSite locations and by the selective opening of high street branches.
We estimate that we still have only a 3% to 4% market share in our chosen
operating sector. Ours is a fragmented market, which gives us continued
confidence in organic growth opportunities. In addition, following the
successful acquisition and integration of OSP during 2007, we will continue to
consider selective acquisitions of complementary companies which would enable us
to broaden our service offering.
Operational Review
OnSite
The number of OnSite locations grew considerably, to 101 at the year end
compared to 71 a year earlier. This growth includes 12 OSP locations, which were
fully integrated into Staffline's operations from 1 July 2007. As in previous
years, organic growth has been driven by existing clients taking on additional
OnSites as well as new client wins. Clients continue to be attracted to a
combination of the benefits of outsourcing their temporary recruitment function,
allowing them to focus on managing their core business, together with the
operating efficiencies that the appointment of Staffline delivers.
We are seeing a gradual change in the mix of our business as consumer growth in
internet shopping drives the need for additional workers in the distribution
market.
Industrial branch network
The Staffline branded branch network had a successful year, with all branches
operating profitably at the year end, whilst continuing to initiate
relationships that can be grown into OnSites over time.
Techsearch
Techsearch had an improved performance, with increases in revenues from
permanent and temporary placements.
OSP
The OnSites operated by OSP have been fully integrated in to the Staffline
network. The other services offered by OSP have continued to be marketed under
that brand. Growth in sales and operating profits was excellent.
Labour market
During the year, we contracted 34,674 people, some of whom worked for us for
just a few days whilst others were with us all year. People chose to work
through us for many reasons, often as a first step on the employment ladder in
the UK, as a route to obtaining full time work or to fund their studies. Others
enjoy the freedom such work affords them, leaving them free to undertake child
or other care.
59% of our workers come from the new EU accession states and of these over 70%
are under 35 years of age. We have had early indications that some of the
initial inflow of workers have decided to return home, which led to a slight
tightening of labour supply in the last quarter of the year. Our core skill of
reliably recruiting workers for clients combined with our reputation amongst
workers as an ethical employer positions us well within this context.
Industry Background
We continue our commitment to high ethical standards, responsible policies and
auditable processes which our clients can rely upon. During the year, we have
also had a particular focus on enhancing our Health and Safety controls and
developing our Environmental Policy.
Health & Safety
We take the provision of a safe working environment extremely seriously and have
invested in ensuring that we have processes and systems which alert us to areas
of concern before we place a contractor in a position. In an OnSite location,
this is relatively simple as we are often responsible for carrying out induction
and other training, keeping accurate records and ensuring that a worker is
suitably qualified for a role. Also, as we are located on the client's premises,
we have direct access to the client and any concerns identified can be readily
addressed.
In order to exert similar controls for clients supplied through our branch
network, some of whom are small owner-operated businesses, we have introduced
further checks to ensure a safe working environment for all. Where these checks
have highlighted safety concerns which we have been unable to resolve
satisfactorily, we have withdrawn our workers. One of the key areas of concern
in the past has been where a worker has been supplied for a specific assignment
but has been moved to another assignment for which they are not suitably
trained. The introduction of a series of regular checks will ensure this risk is
mitigated.
Environmental Policy
Whilst, by the nature of our business, we have a lower impact on the environment
than companies operating in other sectors, we recognise that it is necessary for
us to do whatever is possible to minimise our carbon footprint. To this end, we
have been developing our environmental policy since 2004, when we stopped
providing company cars and introduced a stringent policy of reimbursement for
business mileage.
During that year, we also started to look at ways in which we could reduce the
transportation of workers by attracting people living in an area local to a
client rather than having to transport them to a client. We estimate that we now
transport about 75% fewer workers than we did three years ago which also
provides economic benefits to the Group.
More recently, we have introduced re-cycling schemes for our used office
products, mobile phones and computer equipment. We are also moving our head
office to a purpose-built, energy-efficient location in Nottingham in March. The
new building is already served by good public transport links; however these
will be further improved over the next few years with the extension of the
Nottingham tram network, allowing almost all of our staff to travel to work by
public transport.
Gangmaster Licensing
As previously reported, Staffline was the first major supplier to be granted a
Gangmaster licence under the Gangmaster Licensing Act 2006. Since the licensing
scheme came into force, 46 suppliers have had their licences withdrawn. We
applaud the efforts made by the Gangmaster Licensing Authority to stamp out poor
operating practices and welcome the positive impact it has had on our industry.
Verification Systems
We continue to have a large number of workers who attempt to register with us
without possessing the correct identification documents. The investment made in
2006 in IT systems has greatly helped us to ensure that such workers are not
supplied in error by us to a client. We continue to work very closely with the
various Government departments and, in the many audits they have undertaken, we
have always been shown to be fully compliant with all legislation.
Employees
The number of people employed by the Group rose 15% during the year to 245 in
2007 from 213 in 2006. Our employees continue to be the backbone of our Group
and we are committed to recognising their valuable contribution to delivering
consistently exceptional client service and to growing the business. We have in
place a share option scheme and a comprehensive benefits package as well as
performance-related bonuses.
Current Trading and Prospects
Trading for the first eight weeks of 2008 has been ahead of the same period last
year, in line with our expectations.
Whilst mindful of the potential slow down in the UK economy, we are confident
that the successful growth of our OnSite contract base, together with our strong
exposure to the food sector will allow us to continue our rapid organic
expansion. Indeed, we anticipate that any prolonged downturn will provide
additional opportunities for us, as clients seek further operating efficiencies.
We are, therefore, confident that the Group will continue to make progress in
the current year and thereafter.
Andy Hogarth
3 March 2008
Note 2007 2006
£'000 £'000
Continuing operations
Revenue 119,866 84,111
Cost of sales (101,676) (69,975)
Gross profit 18,190 14,136
Administrative expenses (13,336) (10,383)
Operating profit 4,854 3,753
Finance costs (489) (395)
Profit before taxation 4,365 3,358
Tax expense 3 (1,363) (1,014)
Net profit for the year 3,002 2,344
Total and continuing earnings per ordinary share 4
Basic 14.2p 11.3p
Diluted 13.7p 10.9p
Share Profit
based and
Share payment Share loss
capital reserve premium account Total
£'000 £'000 £'000 £'000 £'000
At 1 January 2006 2,082 68 14,257 1,636 18,043
Net profit for the year and
total recognised income and
expenses for the year - - - 2,344 2,344
Employee share based
compensation - 39 - - 39
Dividends paid - - - (458) (458)
At 31 December 2006 2,082 107 14,257 3,522 19,968
Share options exercised 30 - 211 - 241
Net profit for the year and
total recognised income and
expenses for the year - - - 3,002 3,002
Employee share based
compensation - 61 - - 61
Transfer on exercise of options - (62) - 62 -
Dividends paid - - - (635) (635)
At 31 December 2007 2,112 106 14,468 5,951 22,637
2007 2006
£'000 £'000
Assets
Non current
Goodwill 24,181 22,326
Other intangible assets 116 -
Property, plant and equipment 948 204
25,245 22,530
Current
Trade and other receivables 16,638 13,189
Cash and cash equivalents 829 823
17,467 14,012
Total assets 42,712 36,542
Liabilities
Current
Trade and other payables (12,244) (9,139)
Borrowings (2,506) (3,807)
Other current liabilities (17) -
Current tax liabilities (699) (478)
(15,466) (13,424)
Non current
Borrowings (4,455) (3,150)
Other non current liabilities (154) -
Total liabilities (20,075) (16,574)
Equity
Share capital (2,112) (2,082)
Share premium (14,468) (14,257)
Share based payment reserve (106) (107)
Profit and loss account (5,951) (3,522)
Total equity (22,637) (19,968)
Total equity and liabilities (42,712) (36,542)
2007 2006
£'000 £'000
Cash flows from operating activities
Profit before taxation 4,365 3,358
Adjustments for:
Interest paid 489 395
Depreciation and amortisation of property, plant 306 93
and equipment and intangible assets
Operating profit before changes in working
capital and provisions 5,160 3,846
Change in trade and other receivables (2,594) (4,526)
Change in trade and other payables 2,108 2,877
Cash generated from operations 4,674 2,197
Adjustment for debt issue costs 10 50
Employee equity settled share options 61 39
Taxes paid (1,142) (1,352)
Net cash inflow from operating activities 3,603 934
Cash flows from investing activities
Purchases of property, plant and equipment (1,715) (209)
Proceeds from sale of property 1,626 -
Acquisition of subsidiary net of cash acquired (2,098) -
Net cash used in investing activities (2,187) (209)
Cash flows from financing activities
New bank loans 2,000 -
Repayment of bank and other loans (886) (375)
Movement in invoice discounting facility - (2,458)
Interest paid (489) (395)
Dividends paid (635) (458)
Proceeds from the issue of share capital 241 -
Net cash from financing activities 231 (3,686)
Net change in cash and cash equivalents 1,647 (2,961)
Cash and cash equivalents at beginning of period (2,409) 552
Cash and cash equivalents at end of period (762) (2,409)
1. ACCOUNTING POLICIES
Basis of preparation
The consolidated financial statements of Staffline Recruitment Group plc and its
subsidiary undertakings ('the Group') have been prepared under the historical
cost convention and in accordance with International Financial Reporting
Standards as adopted by the EU and the International Financial Reporting
Standards as issued by the International Accounting Standards Board.
The accounting policies of the Group are included in the 2007 financial
statements.
Change in accounting policies
The Group has adopted for the first time IFRS 7 Financial Instruments
Disclosures in the 2007 financial statements. This standard has been applied
retrospectively. The 2006 comparatives contained in the financial statements
therefore may differ from those published in the financial statements for the
year ended 31 December 2006.
All disclosures relating to financial instruments have been updated to reflect
the new requirements. In particular the following information is disclosed:
• An aging of post due trade receivables
• A sensitivity analysis to explain the company's market risk exposure in relation
to interest rates is shown as at the balance sheet date
In accordance with the amendment of IAS 1 'Presentation of Financial Statements'
the Group now reports on its capital management objectives, policies and
procedures in each annual financial report.
2. SEGMENTAL REPORTING
(a) By business segment (primary segment):
As defined under IAS 14, the only material business segment the Group has is
that of providing temporary staff to customers as the placement of permanent
staff to customers contributes less than 10% of Group total revenue. The sales
revenue is from the rendering of services.
(b) By geographical segment (secondary segment):
Under the definitions contained in IAS 14, the only material geographic segment
that the Group operates in is the United Kingdom.
3. 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:
2007 2006
£'000 % £'000 %
Result for the year before tax 4,365 3,358
Tax rate 30% 30%
Expected tax expense 1,309 30.0 1,007 30.0
Adjustment for non-deductible expenses relating
to short term temporary differences (14) (0.3) (24) (0.7)
Other non-deductible expenses 68 1.5 25 0.7
Adjustments in respect of prior periods - - 6 0.2
Actual tax expense 1,363 31.2 1,014 30.2
Tax expense comprises:
Current tax expense 1,363 1,014
There is no tax expense or credit in relation to the share based payment reserve
credited to equity.
4. 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 year. The calculation of the diluted earnings per
share is based on the basic earnings per share adjusted to allow for all
dilutive potential ordinary shares.
Details of the earnings and weighted average number of shares used in the
calculations are set out below:
Basic Diluted
2007 2006 2007 2006
Earnings (£'000) 3,002 2,344 3,002 2,344
Weighted average number of
shares 21,084,103 20,824,463 21,951,815 21,511,163
Earnings per share (pence) 14.2p 11.3p 13.7p 10.9p
The weighted average number of shares has been increased by 867,712 (2006:
686,700) shares to take account of all dilutive potential ordinary shares that
could be issued under the share option scheme.
Dividends
During the year, Staffline Recruitment Group plc paid interim dividends of £
275,453 (2006: £208,245) to its equity shareholders. This represents a payment
of 1.3p (2006: 1.0p) per share. A final dividend of £ 530,000 has been proposed
(2006: £359,116) but has not been accrued within these financial statements.
This represents a payment of 2.5p (2006: 1.7p) per share. The final dividend for
2006 was declared and paid in 2007.
5. ACQUISITION OF SUBSIDIARY
On 16 March 2007, Staffline Recruitment Group plc acquired the entire issued
share capital of Onsite Partnership Limited (OSP). OSP offers temporary and
permanent recruitment services to clients in the UK.
The acquisition has been accounted for using the purchase method of accounting.
From the date of acquisition to 31 December 2007 the acquisition contributed
revenue of £6,135,000 and a profit after tax for the period of £74,000 to the
Group. Due to the difficulties in now obtaining data prior to the acquisition of
OSP a proforma profit or loss for the combined entity for the complete 2007
reporting period cannot be determined reliably.
The goodwill arising on the acquisition during the year is attributable to the
anticipated future profitability of OSP. In addition, this acquisition brings
access to new service offerings for the Group.
Effect of acquisition
Acquiree's book Fair value Acquisition
values adjustments amount
Acquiree's net assets at
the acquisition date: £'000 £'000 £'000
Other intangible assets -
customer contracts - 216 216
Property, plant and equipment 824 (134) 690
Trade and other receivables 855 - 855
Cash and cash equivalents 6 - 6
Trade and other payables (997) - (997)
Loans (521) - (521)
Deferred tax (8) 8 -
Net identifiable assets
and liabilities 159 90 249
Goodwill on acquisition 1,855
Cash consideration paid
including fees 2,104
The fair value adjustments above have arisen as a result of the recognition of
the value of customer contracts, the market value of the Head Office property of
OSP and the adoption of the accounting policies of the Group. A significant part
of the acquisition costs can be attributed to the potential market opportunity
presented by the National Response Centre, and the potential synergies
achievable in the future between Staffline Recruitment Group plc and OSP. At the
acquisition however, no intangible asset qualified for recognition in this
respect. These circumstances contributed to the amount recognised as goodwill.
The cash consideration paid was £2 million. Costs of acquisition were £104,000
in respect of advisors fees. All goodwill arising on the business combination
had been allocated to the same single cash-generating unit that existed at the
date of acquisition.
6. PUBLICATION OF NON-STATUTORY ACCOUNTS
The financial information set out in this preliminary announcement does not
constitute statutory accounts as defined in section 240 of the Companies Act
1985.
The summarised consolidated profit and loss account, the summarised consolidated
statement of changes in equity, the summarised consolidated balance sheet and
the summarised consolidated cash flow statement and associated notes have been
extracted from the Group's 2007 statutory financial statements upon which the
auditors opinion is unqualified and does not include any statement under Section
237 of the Companies Act 1985.
Those financial statements have not yet been delivered to the registrar of
companies.
This information is provided by RNS
The company news service from the London Stock Exchange