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Pinnacle Staffing Group plc

('the Group' or 'Pinnacle')

Preliminary Results for the year ended 4 January 2009

Pinnacle Staffing Group plc, (AIM: PCL) the healthcare recruitment group, announces its full year results for the year ended 4 January 2009.

*Board restructured to initiate cultural change and improve performance

*Termination of the transitional arrangements resulting from the demerger from Nestor Healthcare Group plc ('Nestor')

*New focus on developing British Nursing Association ('BNA') into a strong national branch-based business

*Nursing division now set for significant growth

Commenting on the results, David Hope, Chief Operating Officer & Finance Director of Pinnacle said:

'Since demerger from Nestor Healthcare Group plc in September 2006, Pinnacle has struggled to take full advantage of the assets at its disposal, in particular its national branch network and its historic database of over 40,000 healthcare workers. These have traditionally been the key to the success of its brands. The legacy of underinvestment, lack of focus on internal processes, and the contraction of its branch network has meant that Pinnacle has found it difficult to keep pace with an ever changing healthcare market. I am confident however, that by better utilising the Group's assets, and by continuing to invest in our branches and staff, we will see a return to profitability in the short to medium term.'

Enquiries:

Pinnacle Staffing Group Plc

Tom Charlton, Executive Chairman                01582 395900

David Hope, Chief Operating Officer and Finance Director        

Brewin Dolphin Limited (NOMAD)

Matt Davis                                                          0845 213 4730

Chairman's Statement

The Group has had a turbulent year with a new Board being appointed in September 2008 to address the challenges faced by the Group. Despite a broadly favourable market background, the Group had not been well-placed to serve its markets due to a legacy of underinvestment in its branch structure, excessive central overheads and a lack of focus on the core elements necessary for a modern healthcare recruitment business. Pinnacle owns one of the best brand names in the healthcare industry, BNA, with 60 years of proud service to the NHS, but the brand had become neglected and treated as just another trading name within the business. The initial focus of the new Board has therefore been to promote the BNA brand with a new logo, resources made available for advertising and the commitment to develop the branch structure with new branches to be established and existing ones expanded. Pinnacle also owns other nursing brands, and although individually they are not as renowned as BNA, they will have their part to play in driving Pinnacle's return to growth. Likewise in medical services, we have valuable brand-names which have not been developed and where there is scope for establishing successful trading businesses.

Financial Results

The results presented are for the 52 weeks ended 4th January 2009, and the comparative figures for the 53 weeks ending 6th January 2008. Group revenue for the period amounted to £38.1m (2007: £43.5m) a decrease of approximately 12%. Gross margins increased slightly to 19% (2007: 18.8%) mainly due to the revision of the Group's non-NHS charge rates, despite the lower margins available on the London and Regional Nursing Frameworks and generally lower margins within the Medical Services Division. Total gross profit achieved was £7.3m (2007:£8.2m).

EBITDA was a loss of £362k (2007: Profit £186k).The operating loss was £6,974k (2007: £461k), finance charges were £244k (2007: £172k) the taxation credit was £132k (2007: Charge £71k),total depreciation and amortisation of intangible assets was £683k (2007: £647k), total impairment of goodwill and intangible assets was £5,929k (2007: £nil) and retained loss after tax was £7.1m (2007: £704k).

There has been significant expenditure on the implementation of a new IT network infrastructure and a new billing and payroll system to replace those previously provided by Nestor. The costs of these systems have been a heavy drain on the Group's cash resources and the full cost of installation which amounted to approximately £401k has been expensed in the financial year just ended. There was a cash outflow of £281k during the year (2007: £684k). Closing net borrowings were £2.2m (2007: £1.9m).

Trading  

The Group's core Nursing Division which includes its key brand, the British Nursing Association, (BNA) broadly maintained its revenue with sales for the year of £31.5m (2007: £30.4m). Medical Services has seen a substantial fall in revenue to £6.6m (2007: £13.0m) caused principally by the withdrawal from the NHS North Central London Master Vendor Agreement for the supply of allied health professionals. The Transitional Services Agreement under which the Group purchased IT, billing and payroll services from Nestor ended during the year. 

Finances 

The Group continues to trade within its existing bank facilities and remains in compliance with its banking covenants. I gave a personal guarantee during the year at the request of our bankers to support the Group's invoice discounting facility. This guarantee was to provide additional security to our bankers as a condition of temporarily relaxing the minimum headroom requirements under the facility. Due to the forecast growth in revenue, it is anticipated that this guarantee will no longer be required by the end of May 2009. The Group's current invoice discounting facility expires in September 2009 and discussions regarding renewal with our bankers have already commenced with neither party being aware of any reason why, at the current time, these facilities will not be renewed.

Board

During the year, there have been a number of Board changes. In January 2008 Julie Greenwood took the decision to relinquish her role as Chief Executive. She was replaced by Jacqui Skinner who later stepped down in September 2008. The Non-Executive Chairman, Richard Aitken-Davies and Non-Executive Directors Trevor Jones and Ewan Gowrie also resigned in September 2008. Having been appointed as a Non-Executive Director, I was appointed to the role of Executive Chairman in September 2008 to oversee the day-to-day operational management of the business and to ensure that the Company's strategy was effectively delivered. David Hope was appointed Chief Operating Officer in September 2008 and also to the position of Finance Director in December 2008 when David Laing resigned his position. John Hodges was appointed a Non-Executive Director in September 2008 and in January 2009 Lynn Young was also appointed as a Non-Executive Director.

The Board currently consists of a two man executive team with two non-executive directors. In view of the demands of the business and the need to provide continued stability and clear leadership, it has been agreed that I will now remain as Executive Chairman for the foreseeable future. However the Board is delighted to announce that John Hodges has been appointed to the position of Deputy Chairman. It is essential for the growth of the business that day-to-day decisions are taken swiftly in an entrepreneurial environment while at the same time the executives have access to the commercial and nursing expertise of the non-executives. The current Board structure works well and provides leadership to the business.

Outlook

There are tremendous opportunities for the Group to take advantage of its portfolio of brand-names in the healthcare recruitment industry. BNA is undoubtedly still held in affection by many nurses although the decline in its revenue over the last few years has led many to believe that it has disappeared from the industry. Our success in being appointed as the primary supplier of agency nurses for Acute Trusts within the Bristol, Bath, Gloucester and Weston Collaborative shows that it is still a powerful brand which can be reinvigorated with the right investment and hard work to re-establish its brand credentials. Our other brands have also faded from their past glories. However with the right market positioning and investment in people and processes, they too can recover and become valuable profit contributors. Already a new management team has breathed new life into our doctors recruitment business and we are constantly looking for new opportunities to develop our medical services offering.

I am confident that 2009 will see both a significant increase in revenue and a return to profitability for the Group. The Board shares my belief that the potential of the Group is such that we should be looking at a time scale of the next four years to restore Pinnacle to being a successful and leading healthcare recruitment business which we can all be proud of. I would like to thank our staff, my fellow Directors, our healthcare workers and our clients, bankers and shareholders for their support over the last year as we look forward to an exciting 2009 as we start to grow the business again.

Tom Charlton

Executive Chairman

26 March 2009

Principal activities and Review of Business

The group is a provider of healthcare workers in the temporary healthcare staffing market. It supplies nurses, locum doctors, carers and other medical personnel to a wide client base including the NHS, private hospitals, care homes and to individuals within their own homes. It is one of the few national temporary staffing recruitment businesses dedicated to the supply of healthcare workers. The business has a national presence, operating through 25 branches, which are supported by the Group infrastructure.

The results for the year show revenue of £38.1m (2007: £43.5m) and EBITDA of £(362)k (2007: £186k). Operating loss was £6,974k (2007: £461k) and loss before tax was £7,214k (2007: £633k). The taxation credit for the period was £132k (2007: Charge £71k) and the loss after tax was £7,082k (2007: £704k).

Strategy

The objective of the Group is to achieve profitable growth by capitalising on its strong brand portfolio and national presence. We aim to achieve this through:

• remaining focused and dedicated to the supply of temporary healthcare workers to the NHS and independent markets;

• developing local agreements with NHS Trusts to cater for their specific, local, requirements;

• the active regeneration of our historic database of over 40,000 former healthcare workers;

• development of overseas relationships and offices to deliver a larger candidate base;

• continued development of the Group's information technology platform to allow remote access for customers and candidates, further reducing transactional costs;

• investing in our people and our marketing capability.

Financial Review

Income Statement

The results presented here are for the 52 weeks ended 4th January 2009 ('2008'). Comparative information is presented for the 53 week period ended 6th January 2008 ('2007').

Revenue

Revenue for the period amounted to £38.1m (2007: £43.5m). The Group's core Nursing Division which includes its key brand, the British Nursing Association, ('BNA') maintained its revenue with sales for the year of £31.5m (2007: £30.4m). The Medical Services Division has seen a substantial fall in revenue to £6.6m (2007: £13.0m) caused principally by the withdrawal from the NHS North Central London Master Vendor Agreement for the supply of allied health professionals.

Gross Profit 

The overall gross profit amounted to £7.3m (2007: £8.2m). Through the revision of its non-NHS charge rates the business has managed to reverse some of the downward pressures on its margins which has led to the improvement of the overall gross margin to 19% (2007: 18.8%).

Operating Expenses

During 2008 management made some significant cost savings however the majority of these were offset by the additional costs associated with the severely delayed implementation of new IT systems and the cessation of the Transitional Services Agreement entered into with Nestor Healthcare Group Plc when the Company was demerged in September 2006. The total value of the IT project costs amounted to £401k. Work still continues on refining the new IT systems and it is likely that further investment in these systems will be required in 2009.

The Board is committed to addressing the historic underinvestment in its branch network in order to support the planned growth of the business.

Operating expenses before financing charges, depreciation, amortisation of intangibles and impairment of goodwill and intangible assets amounted to £7.6m (2007: £8.0m).

Following an annual review of the Group's intangible assets and goodwill, £5,929k has been charged to the Income Statement in respect of an impairment of these assets as detailed in note 6.

Financing Costs   

The Group fulfils its financing requirements by way of an invoice discounting facility, whereby it can borrow up to 80% of outstanding receivable balances less than 120 days old. Total bank charges in the period amounted to £68k (2007: £55k) and interest payable on the invoice discounting facility borrowings totalled £176k (2007: £117k). 

Loss before tax

The Group made a loss before tax of £7,214k (2007: £633k).  

Taxation 

The total taxation credit for the year is £132k (2007: Charge £71k). £65k relates to an over provision of the prior period's tax charge and the remaining £67k is the deferred tax credit for the year (2007: Charge £29k). The charge relating to the loss for the year is £nil (2007: £nil).

Loss Per Share

Basic loss per share amounted to 8.08 pence (2007: 0.80 pence).

Dividend

The Directors do not recommend the payment of a dividend on ordinary shares at this time (2007 : £nil).

Cashflow and borrowings

Closing net borrowings amounted to £2.2m (2007: £1.9m). Our financial year end coincides with the slowest point of the year both operationally and from a cash generation perspective as many of our clients curtail their operations over the Christmas period. In addition, our December holiday pay year end means that there is a significant cash outflow as temporary staff claim their rolled-up holiday pay entitlement. Further, the new IT systems were financed from working capital and have had a negative impact on overall borrowings. Year end trade debtor days were 48 days (2007: 46 days).

Trade Payables

Trade payables and payroll liabilities amounted to £2.9m (2007: £3.1m). The Group had an average of 31.9 days purchases (2007: 29.4 days) included in trade payables at the year end. The Company had no trade payables at the year end. It is the Group's practice to agree credit terms with all suppliers and to pay all approved invoices within these credit terms. 

Treasury Policy and Financial Risk Management

The Group manages its cash and debt position in order to minimise interest costs. The current level of borrowings mean that the Board believes that it is unnecessary to have an interest rate hedging policy.

The Group's financial instruments comprise invoice discounting facilities, cash and other items arising from operating activities such as trade receivables and trade payables. The main purpose of these financial instruments is to provide finance for the Group's operations.  

The principal financial risks of the Group are identified as follows:

Banking covenants

The Group is committed to maintaining the key financial indicators as set out in the covenants relating to the invoice discounting facility. The Group continues to trade within its existing bank facilities and remains in compliance with its banking covenants. During the year, at the request of our bankers, Executive Chairman Tom Charlton gave a personal guarantee to support the Company's invoice discounting facility.

Credit Risk Management

It is Group policy to mitigate credit risk arising through client debt by undertaking credit checks on all new private clients prior to commencement of trading. Further, the application of rigorous credit control procedures highlights potentially difficult debt at an early stage so that remedial action can be taken.

Charitable and Political Donations

The Group made no charitable or political donations in the year (2007: £nil).

David Hope

Chief Operating Officer and Finance Director

26 March 2009

Group Income Statements

for the 52 weeks ended 4th January 2009

				52 weeks to 04/01/09	53  weeks to 06/01/08
			Notes	£000	£000
Revenue			3	38,116	43,466
Cost of sales				(30,848)	(35,299)
Gross profit				7,268	8,167
Marketing and sales				(2,670)	(3,052)
Administrative expenses				(11,572)	(5,576)
Operating loss				(6,974)	(461)
Finance income				4	-
Finance expense				(244)	(172)
Loss before taxation				(7,214)	(633)
Tax expense			4	132	(71)
Loss for the period				(7,082)	(704)
Analysis:
EBITDA				(362)	186
Depreciation of property, plant and equipment				(317)	(222)
Amortisation of intangible assets				(366)	(425)
Impairment of goodwill and intangible assets				(5,929)	-
Operating loss				(6,974)	(461)
Loss per 10p share
Basic			5	(8.08p)	(0.80p)
Diluted			5	(8.08p)	(0.80p)

Group and Company Balance Sheets

As at 4th January 2009

				Group		Company
				04/01/09	06/01/08	04/01/09	06/01/08
			Note	£000	£000	£000	£000
Assets
Non-current assets
Goodwill			6	5,416	9,868	-	-
Intangible assets			6	2,801	4,642	-	-
Property, plant and equipment			7	533	491	-	-
Deferred income tax assets				49	-	-	-
Investments in subsidiaries				-	-	15,242	21,171
Total non-current assets				8,799	15,001	15,242	21,171
Current assets
Trade and other receivables				5,820	6,495	1	5
Cash and cash equivalents				84	110	-	-
Total current assets				5,904	6,605	1	5
Total assets				14,703	21,606	15,243	21,176
Equity
Ordinary shares				8,763	8,763	8,763	8,763
Share premium account				7,408	7,408	7,408	7,408
Share payment reserve				11	11	11	11
Retained losses				(7,532)	(450)	(6,426)	(937)
Total equity				8,650	15,732	9,756	15,245
Liabilities
Current liabilities
Financial liabilities:
- Borrowings - loans				2,275	2,020	-	-
Trade and other payables				3,654	3,737	5,487	5,931
Deferred income tax liabilities				-	18	-	-
Provisions				124	99	-	-
Total current liabilities				6,053	5,874	5,487	5,931
Total liabilities				6,053	5,874	5,487	5,931
Total equity and liabilities				14,703	21,606	15,243	21,176

Group and Company Statement of Changes in Equity

for the 52 weeks ended 4th January 2009

				52  weeks to 04/01/09	53  weeks to 06/01/08
				£000	£000
Group
Net recognised loss				(7,082)	(704)
Share based payments				-	11
Decrease in equity shareholders' funds				(7,082)	(693)
Total equity at beginning of the period				15,732	16,425
Total equity at end of the period				8,650	15,732
				52  weeks to 04/01/09	53  weeks to 06/01/08
				£000	£000
Company
Net recognised loss				(5,489)	(644)
Share based payments				-	11
Decrease in total equity				(5,489)	(633)
Total equity at beginning of the period				15,245	15,878
Total equity at end of the period				9,756	15,245

Group Cash Flow Statement

for the 52 weeks ended 4th January 2009                    

				Group
				52 weeks to 04/01/09	53  weeks to 06/01/08
				£000	£000
Operating activities
Cash generated from operations (note 8)				326	(99)
Interest paid				(244)	(172)
Interest received				4	-
Income taxes paid				-	(165)
Net cash (used in)/generated from operating activities				86	(436)
Investing activities
Purchase of intangible assets				(2)	(80)
Purchase of tangible assets				(365)	(169)
Proceeds from sale of property, plant and equipment				-	1
Net cash used in investing activities				(367)	(248)
Financing activities
Increase in loans from banks				255	376
Net cash generated from financing activities				255	376
Net decrease in cash and cash equivalents				(26)	(308)
Cash and cash equivalents at beginning of the period				110	418
Net decrease in cash and cash equivalents				(26)	(308)
Cash and cash equivalents at end of the period				84	110

The Company does not hold cash and consequently has not presented a cash flow statement.

Notes to the Financial Information

1 Corporate Information

Pinnacle Staffing Group plc is a limited liability company incorporated and domiciled within the United Kingdom whose shares are publicly traded. The consolidated preliminary results for the Company as at and for the year ended 4th January 2009 comprise the company and its subsidiaries ('the Group').

The consolidated preliminary results for the Group for the year ended 4th January 2009 were approved by the directors on 26 March 2009.  

2 Basis of preparation and accounting policies

Basis of preparation

These consolidated preliminary results have been prepared in accordance with the recognition and measurement criteria of IFRS. They do not include all of the financial information included in the Group's annual report and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 4th January 2009.

Nature of the financial information

The financial information set out above does not constitute the Company's statutory accounts for the year ended 4th January 2009 and for the period ended 6 January 2008, but is derived from those accounts. Statutory accounts will be delivered to the Registrar of companies following the Company's annual general meeting. The auditors have issued an unqualified audit report on those accounts.

Significant accounting policies

The accounting policies applied by the Group in these consolidated preliminary results are the same as those applied by the Group in the consolidated financial statements contained in the annual report and accounts.

3 Segmental reporting

Operations are conducted and managed through two segments - Nursing and Medical Services, with segmental results reported on this basis. Costs have been allocated on a specific basis where possible, and certain central costs allocated on a reasonable and consistent basis.

The UK was the origin and destination of all of the Group's material revenue in 2008. All revenue is derived from external customers. All of the Group's material operating profits were earned in the UK, and all of the Group's material operating assets and net assets were located in the UK, in 2008.

					2008	2007
					£000	£000
Revenue by business segment
Nursing					31,497	30,423
Medical Services					6,619	13,043
Total					38,116	43,466
					Operating loss	Operating loss
					2008	2007
					£000	£000
EBITDA by business segment
Nursing					(130)	427
Medical Services					(232)	(241)
Total EBITDA					(362)	186
Depreciation					(317)	(222)
Amortisation of intangible assets					(366)	(425)
Impairment of goodwill and intangible assets					(5,929)	-
Total operating loss					(6,974)	(461)
Operating loss by business segment
Nursing					(5,733)	(47)
Medical Services					(1,241)	(414)
Total operating loss					(6,974)	(461)
Finance income					4	-
Finance expense					(244)	(172)
Loss before taxation					(7,214)	(633)
Tax expense					132	(71)
Loss for the period					(7,082)	(704)

Central costs have been allocated across the business segments on the basis of activity and on a consistent and reasonable basis.

The segment assets and liabilities at 4th January 2009 and capital expenditure, depreciation, amortisation and impairment for the period then ended are as follows:

						Segment		Segment		Net
						assets		liabilities		assets
						2008		2008		2008
						£000		£000		£000
Analysis of operating assets and liabilities by business segment
Nursing						6,263		(4,997)	1,266
Medical Services						3,024		(1,056)	1,968
Total operating assets/(liabilities)at 4th January 2009						9,287		(6,053)	3,234
Goodwill									5,416
Total assets/(liabilities), including goodwill, at 4th January 2009									8,650
			Capital expenditure		Depreciation		Amortisation of intangibles		Impairment of intangibles
			2008		2008		2008		2008
			£000		£000		£000		£000
Analysis of other segment items
Nursing			312		267		311		5,040
Medical Services			55		50		55		889
Total			367		317		366		5,929

				Segment	Segment	Net
				assets	liabilities	assets
				2007	2007	2007
				£000	£000	£000
Analysis of operating assets and liabilities by business segment
Nursing				7,749	(4,234)	3,515
Medical Services				3,989	(1,640)	2,349
Total operating assets/(liabilities) at 6th January 2008				11,738	(5,874)	5,864
Goodwill						9,868
Total assets/(liabilities), including goodwill, at 6th January 2008						15,732
				Capital		Amortisation
				expenditure	Depreciation	of intangibles
				2007	2007	2007
				£000	£000	£000
Analysis of other segment items
Nursing				197	173	335
Medical Services				52	49	90
Total				249	222	425

4 Taxation

				2008	2007
				£000	£000
UK Corporation tax on taxable profit/(loss) for the period				-	3
(Over)/under provision in respect of prior period				(65)	39
Current tax (credit)/charge				(65)	42
Deferred tax(credit)/charge for the period				(67)	29
Deferred tax (credit)/charge				(132)	71
Total Tax (credit)/expense for the period				(132)	71
The effective tax rate for the period is 0% of corporation tax for the UK (2007:0%)
				2008	2007
				£000	£000
(Loss)/Profit at the standard rate of corporation tax at 20% (2007: 20%)				(1,443)	(127)
Expenses not deductible				1,272	130
Unrelieved current year tax losses				171	-
(Over)/under-provision in respect of prior period				(65)	39
Timing differences in respect of accelerated capital allowances				(67)	29
Total Tax (credit)/expense for the period				(132)	71

5 (Loss)/earnings per share

Basic (loss)/earnings per 10p share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period.

For diluted (loss)/earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially dilutive ordinary shares. The Group has only one category of potentially dilutive ordinary shares: those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period. A total of 3,071,428 options that were granted in 2007 qualified under this test. However, Julie Greenwood resigned her directorship on 23rd January 2008 and David Laing resigned his directorship on 17th December 2008, therefore their options have now lapsed. Their options were 1,785,714 and 1,285,714 respectively. IAS 33 states that potential ordinary shares shall be treated as dilutive when, and only when, their conversion to ordinary shares would decrease earnings per share or increase loss per share from continuing operations. Therefore, those share options are not included in the calculation of earnings per share.  

				2008
				Weighted	2008
			2008	average	Earnings
			Earnings	number of	per share
			£000	10p shares	pence
Loss per share			(7,082)	87,633,070	(8.08)
Diluted loss per share			(7,082)	87,633,070	(8.08)

				2007
				Weighted	2007
			2007	average	Earnings
			Earnings	number of	per share
			£000	10p shares	pence
Loss per share			(704)	87,633,070	(0.80)
Diluted loss per share			(704)	88,918,784	(0.80)

6 Goodwill and intangible assets

					Total
					2008
Goodwill					£000
Group
Cost
At 7th January 2008					9,868
Impairment charge					(4,452)
At 4th January 2009					5,416

					Total
					2007
Goodwill					£000
Group
Cost
At 1st January 2007					9,868
At 6th January 2008					9,868

Group goodwill derives from the acquisition of businesses and subsidiary undertakings in 2006. In 2006, the directors specifically evaluated the carrying values of goodwill. In light of the current trading, the value of the goodwill has been impaired by £4,452k to more accurately reflect a recoverable carrying amount.

The carrying amounts of goodwill by business segment are as follows:

				2008	2007
				£000	£000
Goodwill by business segment
Nursing				4,012	7,748
Medical services				1,404	2,220
Total				5,416	9,868

Intangible assets			Development Costs 2008 £000	Temporary Staff Databases 2008 £000	Customer Contracts 2008 £000	Total  2008 £000
Group
Cost
At 7th January 2008			80	81	5,051	5,212
Additions			2	-	-	2
At 4th January 2009			82	81	5,051	5,214
Amortisation
At 7th January 2008			-	8	562	570
Charge for the period			-	4	282	286
Write off			80	-	1,477	1,557
At 4th January 2009			80	12	2,321	2,413
Net book amount
At 4th January 2009			2	69	2,730	2,801

Intangible assets		Development  Costs 2007 £000	Temporary Staff Databases 2007 £000	Customer Contracts 2007 £000	Total 2007 £000
Group
Cost
At 1st January 2007		-	81	5,051	5,132
Additions		80	-	-	80
At 6th January 2008		80	81	5,051	5,212
Amortisation
At 1st January 2007		-	4	141	145
Charge for the period		-	4	421	425
At 6th January 2008		-	8	562	570
Net book amount
At 6th January 2008		80	73	4,489	4,642

Intangible assets represent the capitalised value of customer contracts and staff databases acquired via business combinations (acquisitions of businesses and subsidiary undertakings). Such contracts and databases are capitalised at fair value and amortised over a period equal to the remaining useful economic life. Contract lives so amortised vary between three and twelve years, database lives are amortised over twenty years.

The Group carries out reviews of its intangible assets on an annual basis to determine whether events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If any such indication exists, the recoverable amount of the asset 

is estimated as either the higher of the net selling price, replacement cost, or value in use; the resultant loss (the difference between the carrying amount and the recoverable amount) is recorded as a charge to the consolidated income statement. The calculation of replacement costs is based on the current value of overhead costs attributable to database management. The value in use is calculated as the present value of the estimated future pre -tax cash flows expected to result from the use of assets in the business being evaluated. In order to determine the present value of estimated future cash flows, the Group uses a discount rate of 11% based on its estimated weighted average cost of capital. Estimated future cash flows used in the impairment calculations represent management's best view of likely market conditions including selling prices, volumes and employment costs over a period of 5 years. Beyond this, the UK long-term growth rate of 2.25% has been assumed. Actual cash flows may differ significantly from these estimates due to the effect of changes in market conditions or to subsequent decisions on the activities of the business. These differences may have a material impact on the asset values, impairments and amortisation expense reported in future periods.

The annual review of intangible assets resulted in an impairment of £1,477k, following the withdrawal from a major contract. A charge of £286k has been included in the income statement in relation to the amortisation of these intangible assets.

Development costs represent costs from the development phase of a new pay and bill system for the temporary staffing business, which was completed in the last quarter of 2008. It was the intention of the previous Board to amortise these costs over the useful life of the project, which is six years. However this policy has now been reviewed and a decision made to take these costs directly to the income statement.

7 Property, plant and equipment    

				Plant &
				equipment,
			Leasehold	fixtures &
			improvements	fittings	Total
			2008	2008	2008
			£000	£000	£000
Group
Cost
At 7th January 2008			36	766	802
Additions			72	293	365
Disposals			-	(76)	(76)
At 4th January 2009			108	983	1,091
Depreciation
At 7th January 2008			-	311	311
Eliminated on disposal			-	(70)	(70)
Charge for the period			18	299	317
At 4th January 2009			18	540	558
Net book amount
At 4th January 2009			90	443	533

					Plant &
					equipment,
			Leasehold		fixtures &
				improvements	fittings	Total
				2007	2007	2007
				£000	£000	£000
Group
Cost
At 1st January 2007				-	634	634
Additions				36	133	169
Disposals				-	(1)	(1)
At 6th January 2008				36	766	802
Depreciation
At 1st January 2007				-	90	90
Eliminated on disposal				-	(1)	(1)
Charge for the period				-	222	222
At 6th January 2008				-	311	311
Net book amount
At 6th January 2008				36	455	491

At 4th January 2009 and 6th January 2008, the net book value of assets held under finance leases, capitalised and included in plant and equipment, fixtures and fittings amounts to £nil. The depreciation charge on such assets during the period amounted to £nil.

8 Notes to the cash flow statements

		Group
		2008	2007
		£000	£000
Reconciliation of loss to cash generated from operations
Loss for the period		(7,082)	(704)
Adjustments for:
Tax expense		(132)	71
Finance income		(4)	-
Finance expense		244	172
Depreciation of property, plant and equipment		317	222
Loss on sale of property, plant and equipment		6	1
Impairment of goodwill and intangibles		5,929	-
Amortisation of intangibles		366	425
Share based payments		-	11
Changes in working capital:
(Decrease) in provisions		25	(52)
Decrease/(increase) in trade and other receivables		740	(403)
(Decrease)/increase in trade and other payables		(83)	158
Cash (used in)/generated from operations		326	(99)
		Group
		2008	2007
		£000	£000
Reconciliation of net cash flow to  movement in net debt
(Decrease)/increase in cash and cash equivalents		(26)	(308)
(Increase) in loans from banks		(255)	(376)
		(281)	(684)
Net debt at beginning of the period		(1,910)	(1,226)
Net debt at end of the period		(2,191)	(1,910)

9 The Group's report and accounts for the year ended 4 January 2009 are expected to be posted to shareholders on or around 23 April 2009 and will also be available from the Company's head office at 258 Capability Green, Luton, Bedfordshire, LU1 3LUand will be available to download from its website at: www.pinnacle-staffing-group.co.uk

ENDFR SEUESMSUSEID