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Healthcare Locums plc

('HCL', 'the Company' or 'the Group')

Interim Results for the Six Months Ended 30 June 2009

Financial Highlights

• Revenue up 8.5% to £86.5m (2008: £79.7m) 
  
• Adjusted operating profit(1) up 50.0% to £11.7m (2008: £7.8m) 
  
• Operating profit up 43.8% to £10.5m (2008: £7.3m) 
  
• Profit before tax up 63.8% to £9.5m (2008: £5.8m) 
  
• Basic earnings per share up 65.0% to 6.6 pence (2008: 4.0 pence) 
  
• Adjusted basic earnings per share(2) up 70.5% to 7.5 pence (2008: 4.4 pence)
  
• Net debt reduced to £21.2m (Y/E 2008: £26.9m)
  
• Interim dividend declared of 1.6p (2008: 0.8p)

Operational Highlights

• Strong organic like-for-like gross profit growth rate of 37.6% (2008: 30%)
  
• Annualised run rate turnover(3) now in excess of £206m and run rate gross margin(4) now over £64m
  
• UK divisions continue to outperform and gain market share from competitors
  
• International division is a key growth driver with increasing market share - currently recruiting from 65 countries
  
• New offices opened in Australia, Canada and the Middle East
  
• North American operation expanding to pursue opportunities in the country

 

Kate Bleasdale, Executive Vice Chairman, said:

'We are delighted with these interim results. HCL continues to deliver strong organic growth in all its divisions. The expansion of our international division continues with new offices now opened in Australia, Canada and the Middle East. The UK divisions continue to gain market share in a growing market. We look forward with confidence to the remainder of 2009 and beyond.'

(1) Adjusted operating profit refers to operating profit before reorganisation costs, amortisation of intangibles and share scheme charges as shown in the Results Summary in the Chairman's Statement.

(2) Adjusted basic earnings per share refers to earnings per share before reorganisation costs, amortisation of intangibles and share scheme charges as shown in the Results Summary in the Chairman's Statement. 

(3) Run rate turnover refers to July 2009 turnover extrapolated on an annual basis.

(4) Run rate gross margin refers to July 2009 gross margin extrapolated to an annual basis.

For further information contact:

Kate Bleasdale, Executive Vice Chairman
Diane Jarvis, Chief Financial Officer	020 7451 1451
Bell Pottinger Corporate & Financial
David Rydell/Emma Kent	020 7861 3232
Fairfax I.S. PLC Simon Bennett, Laura Littley	020 7598 5368
KBC Peel Hunt  Jonathan Marren	020 7418 8900

  Chairman's Statement 

BUSINESS OVERVIEW

I am pleased to announce continuing strong performance for the Group in the first six months of 2009. Revenue increased 8.5% in the period to £86.5m (H1 2008: £79.7m). Adjusted operating profit increased by 50.0% to £11.7m (H1 2008: £7.8m), and adjusted basic earnings per share increased by 70.5% to 7.5p (H1 2008: 4.4p). Operating profit increased by 43.8% to £10.5m (H1 2008: £7.3m), profit before tax rose 63.8% to £9.5m (H1 2008: £5.8m) and basic earnings per share increased 65% to 6.6p (H1 2008: 4.0p). Organic growth rate for the period has risen by 37.6% (2008: 30.0%), while annualised run rate turnover is now £206m, an increase of 13% over the last four months. The annualised run rate gross margin equates to £64m, an increase of 10% over the same period last year.

The global demand for qualified healthcare professionals continues to rise, driven by consistent and long-term demographic factors: a growing and ageing world population, and falling levels of candidates entering the caring professions.  

In the UK, our three locum divisions have maintained their position as market leaders in their sectors and have continued to grow and deliver solid returns. The market for locum healthcare professionals is still expanding and the Board is confident that the forces driving demand are unlikely to change both in the short or long term. The UK's ageing healthcare workforce and the increasing proportion of females entering the medical professions are factors that are driving demand for our services. These factors, along with the reduction in working hours permissible by the European Working Time Directive, drive current demand, and expected future increases in demand, for the cost-effective, flexible staffing services provided by HCL.

NHS and public sector clients see flexible and locum staffing as the cost effective solution to maintaining frontline services without incurring the significant expenses associated with pay and benefits of full time public sector workers. Over the lifetime of a worker, public sector pay and benefits cost the taxpayer considerably more than the cost of utilising flexible agency staff in the NHS or public sector. Whilst there is currently no sign of a reduction in NHS spending, should any future budgetary constraints put pressure on public sector spending, then the use of agency staff will increase, as a cheaper and more efficient alternative to full time employees. 

Our International and UK Permanent Placements divisions have delivered £3m of combined sales revenue in the period, a 50% increase on 2008. As a Department of Health accredited Ethical Recruitment Agency, we have well-established networks and operational systems to identify supply streams and meet demand across the globe. The success of the International division is an important development for the Group, and we are making significant investments in the continued growth of this business. We anticipate that the significant contract gains in this division will come through strongly in the second half of 2009, with much of the groundwork having been completed, which will accordingly deliver solid growth for the rest of 2009 and beyond. The Board regards the International division as a key driver of future growth for the business.

HCL is a highly cash generative business with a low cost base and solid and visible revenue streams. Net debt has been reduced by more than £5m during the period to £21.2m (Dec. 2008: £26.9m). The Board's commitment continues to be driving further organic growth in all areas of the business and maximising shareholder value.

The Board is committed to pursuing a progressive dividend policy, and is pleased to announce today an interim dividend of 1.6p per ordinary share (2008: 0.8p).

      

RESULTS SUMMARY 

Business performance

	6 months Ended 30-Jun 2009	6 months Ended 30-Jun 2008	12 months Ended 31-Dec 2008
	£'m	£'m	£'m
Revenue	86.5	79.7	166.4
Adjusted operating profit*	11.7	7.8	21.2
Reorganisation charges	0.4	-	1.4
Amortisation of intangibles	0.5	0.4	0.8
Share scheme charges	0.3	0.1	0.4
Operating profit	10.5	7.3	18.6
Net finance costs	1.0	1.5	2.8
Adjusted profit before tax*	10.7	6.3	18.4
Profit before tax	9.5	5.8	15.8
Basic earnings per share - pence	6.6p	4.0p	11.2p
Adjusted basic earnings per share - pence*	7.5p	4.4p	13.0p

* Adjusted operating profit, adjusted profit before tax and adjusted basic earnings per share are shown before reorganisation charges, which relate to the costs of off shoring certain back office functions to India and the related redundancy costs, amortisation of intangibles and share scheme charges.

BOARD CHANGES

Andy McRae, Chief Operating Officer, has today resigned from the Board of HCL for personal reasons. The Board would like to thank Andy for his positive contribution to the business. We are delighted to announce that Mo Dedat, formerly Executive Finance Director has taken over Andy's role of Executive Chief Operating Officer. Diane Jarvis, currently Group Managing Director, will assume full time responsibility for the Executive financial officer role, as Chief Financial Officer for HCL.

Alan Walker

Chairman

7 September 2009

  

Executive Vice Chairman's Statement 

OVERVIEW

The first half of 2009 has seen another period of rapid growth for HCL and the Group is now firmly established as the market leader in the sectors in which we operate. The Group has continued to generate cash, reduce debt and deliver strong operating margins. With a team of around 400 highly experienced and incentivised sales and support staff, the Group's performance demonstrates management's commitment to delivering growth and maximising shareholder returns.

FINANCIAL PERFORMANCE

The Group has continued to deliver strong growth in the period, benefiting from solid and highly visible revenue streams and a streamlined, cost effective business model. The focus is on moving away from the high volume low margin business to higher Gross Margin (GM) business. The table below demonstrates the significant increase in GM in the Doctors division, of 69% between 2008 and 2009. Significant re-structuring of the Qualified Social Workers (QSW) division in 2008 and 2009 has seen GM increases which we anticipate will accelerate during the second half of 2009 and thereafter. The Allied Health Professionals division (AHP) continues on its impressive growth path year on year. The International and UK Permanent Placement divisions have grown revenues by 50% in the first half of 2009 compared with the first half of 2008, and this division, which now recruits from 65 countries worldwide, continues on its impressive growth path.

The table below shows the split of business in HCL's divisions by revenue and gross margin contribution for the first half of this year compared with the first half of 2008:  

	6 months ended 30 June 2009 Unaudited			6 months ended 30 June 2008 Unaudited
	Revenue	Gross Margin	Gross Margin %	Revenue	Gross Margin	Gross  Margin %
	£'m	£'m	%	£'m	£'m	%
Doctors	26.3	7.1	27.0	28.4	4.2	14.8
QSW	21.6	5.1	23.6	22.4	4.8	21.4
AHP	35.6	12.1	34.0	26.9	8.7	32.3
UK Permanent placements	0.9	0.9	100.0	0.6	0.6	100.0
International Permanent Placements	2.1	1.5	71.4	1.4	1.2	85.7
Total	86.5	26.7	30.9%	79.7	19.4	24.3%

OPERATIONAL REVIEW

The marketplace for health and social care professionals is strong both in the UK and internationally, as demand continues to outstrip supply. There is a severe shortage of healthcare staff to meet the needs of a growing global population, and in many areas of the world an ageing population. This shortage is estimated by the World Health Organisation at 4 million vacancies.

Our UK divisions continue to outperform and gain market share from both small and larger competitors. The NHS and Local Authorities remain our key clients in the UK, and with all three main political parties pledging to maintain expenditure on frontline services we see this as a solid and self-sustaining market for HCL. More and more NHS Trusts now have a policy of deliberately maintaining an appropriate vacancy factor in their workforce so they can manage staff numbers efficiently to meet the peaks and troughs of demand for clinical services. As such the planned usage of agency staff is integral to NHS workforce management, and is also widely regarded as being a cost effective option, as Trusts only need to pay for staff when they are actually using them. The significant on-costs associated with full time public sector employees mean that agency workers are the cheaper and more efficient option and our clients recognise this.

In the Doctors division, new EU working time regulations, which limit junior doctors to a 48 hour working week, have resulted in increased demand for both locums and permanent staff. In the Qualified Social Workers division, the move to a three year degree course has led to a significant reduction of entrants into the profession at a time when the vacancy rate across the country is exceptionally high, being estimated at over 14% UK-wide. The QSW division is increasingly meeting this demand by sourcing appropriately qualified social care professionals from abroad. New offices have been opened in Australia and Canada specifically for the purpose of recruiting qualified social workers for the UK market. The Allied Health Professionals division continues to go from strength to strength, sourcing highly skilled professionals from all over the world to fill the growing demand in the UK. In all divisions demand currently outstrips supply, so HCL is investing heavily in sourcing suitably qualified staff to meet demand. 

Our International and UK Permanent Placement divisions have expanded significantly since set up four years ago, and are now one of our key growth drivers, delivering combined £3m sales in H1 2009, a 50% increase on H1 2008. HCL International enjoys first mover advantage in many of the countries it is recruiting from and to worldwide. The division works directly with Governments and other bodies to source qualified professionals from countries where there is a surplus of healthcare staff, and to supply to countries where there is demand. Our established networks and pipelines provide us with highly visible revenue streams and we foresee significant opportunities for further growth.  

North America is a key area of opportunity for us as the country requires an estimated 1.2 million new nurses to be registered by 2014. This requirement, together with the new US administration's commitment to expand the healthcare system to allow a further 50 million people access to healthcare, has led us to expand our North American operation. We have a well-established pipeline of staff to meet our existing contracts, and our new New York office is aggressively pursuing new opportunities.

There is also accelerating demand for permanent healthcare staff in the Middle East, with a need for over an estimated 40,000 staff in the next five years in this region alone. We have strong relationships with leading hospitals in the region, and have expanded our reach with the opening of a new office in Abu Dhabi.

GRANTING OF SHARE OPTIONS

The Board of the Company announces that on 8 September 2009, the Company will be signing option agreements to grant approved and unapproved options to certain directors and managers of the Company to subscribe for an aggregate of 510,000 shares on the terms set out in the Company's Enterprise Management Incentive Share Option Scheme. A further announcement will be made following the grant of these options.

The unapproved options are subject to the satisfaction of vesting conditions set out in the relevant option agreements. In each case the final exercise date of the Options is ten years from the date of grant.  Following the grant of these options the total of all options in issue will remain less than 5% of the total issued share capital of the company.

 

CURRENT TRADING AND OUTLOOK

The current period has started strongly and is now delivering an annualised run rate turnover of £206m ( £183m in June 2009) and a current annualised run rate gross margin of £64m (£63m in June 2009).  

HCL benefits from solid and highly visible revenue streams and operates in a marketplace where demand in the UK is still growing and where internationally there are significant opportunities. The Board remains, as ever, committed to further growth of the business and to maximising shareholder value. We look forward confidently to the rest of 2009 and beyond.

Kate Bleasdale

Executive Vice Chairman 

7 September 2009

 

  Consolidated Statement of Comprehensive Income

    

	Note	Six months ended 30 June 2009 Unaudited £'000	Six months ended 30 June 2008 Unaudited £'000	Year ended 31 December 2008 Audited £'000
Revenue	2	86,456	79,679	166,408
Cost of sales		59,769	60,305	121,388
Gross profit	2	26,687	19,374	45,020
Administrative expenses before reorganisation costs	3	(15,777)	(12,058)	(25,005)
Reorganisation costs	4	(439)	-	(1,397)
Total administrative expenses	2	(16,216)	(12,058)	(26,402)
Operating profit		10,471	7,316	18,618
Financing income		4	32	51
Financing costs		(963)	(1,514)	(2,908)
Profit before taxation		9,512	5,834	15,761
Income tax expense		(2,633)	(1,724)	(4,167)
Profit for the period		6,879	4,110	11,594
Other comprehensive income:
Cash flow hedges:
Gains/(losses) recognised directly in equity		45	238	(843)
Total comprehensive income for the period		6,924	4,348	10,751
Basic earnings per share (pence)	5	6.6p	4.0p	11.2p
Diluted earnings per share (pence)	5	6.6p	4.0p	11.2p

 

The above results relate to continuing operations. 

 

All profit and comprehensive income is attributable to the owners of the parent.

 

            Consolidated Statement of Changes in Equity

	Note	Called up share capital Unaudited £'000	Share premium Unaudited £'000	Cash flow hedge reserve Unaudited £'000	Retained earnings Unaudited £'000	Total Unaudited £'000
Balance at 1 January 2008		10,047	31,642	(125)	5,617	47,181
Total comprehensive income for the period ended 30 June 2008		-	-	238	4,110	4,348
Issue of share capital		334	2,666	-	-	3,000
Costs of issue of share capital		-	(94)	-	-	(94)
Credit in respect of share scheme charges	3	-	-	-	135	135
Balance at 30 June 2008		10,381	34,214	113	9,862	54,570
Total comprehensive income for the period ended 31 December 2008		-	-	(1,081)	7,484	6,403
Dividends	6	-	-	-	(1,038)	(1,038)
Issue of share capital		46	111	-	-	157
Costs of issue of share capital		-	(1)	-	-	(1)
Credit in respect of share scheme charges	3	-	-	-	281	281
Balance at 31 December 2008		10,427	34,324	(968)	16,589	60,372
Total comprehensive income for the period ended 30 June 2009		-	-	45	6,879	6,924
Dividends	6	-	-	-	(2,085)	(2,085)
Credit in respect of share scheme charges	3	-	-	-	336	336
Balance at 30 June 2009		10,427	34,324	(923)	21,719	65,547

   Consolidated Statement of Financial Position

	As at 30 June 2009 Unaudited £'000	As at 30 June 2008 Unaudited £'000	As at 31 December 2008 Audited £'000
Non-current assets
Property, plant and equipment	1,069	1,337	1,163
Goodwill	60,318	60,242	60,318
Other intangible assets	12,803	9,404	11,358
Deferred tax asset	66	-	161
	74,256	70,983	73,000
Current assets
Trade and other receivables	34,663	32,613	33,402
Derivative financial assets	-	113	-
Cash and cash equivalents	347	1,327	481
	35,010	34,053	33,883
Current liabilities
Trade and other payables	(12,067)	(11,457)	(10,048)
Short term borrowings	(8,091)	(15,268)	(11,594)
Current portion of long-term borrowings	(4,060)	(3,250)	(4,300)
Current tax payable	(6,588)	(2,790)	(5,059)
Short term provisions	(826)	(590)	(1,220)
Derivative financial liabilities	(923)	-	(968)
	(32,555)	(33,355)	(33,189)
Net current assets/(liabilities)	2,455	698	694
Non-current liabilities
Long term borrowings	(9,425)	(14,455)	(11,518)
Deferred tax liability	(1,739)	(2,026)	(1,804)
Long term provisions	-	(630)	-
	(11,164)	(17,111)	(13,322)
Net assets	65,547	54,570	60,372
Equity
Called up share capital	10,427	10,381	10,427
Share premium	34,324	34,214	34,324
Cash flow hedge	(923)	113	(968)
Retained earnings	21,719	9,862	16,589
Total Equity	65,547	54,570	60,372

Consolidated Statement of Cash Flows

	Note	Six months ended 30 June 2009 Unaudited £'000	Six months ended 30 June 2008 Unaudited £'000	Year ended 31 December 2008 Audited £'000
Cash flows from operating activities
Profit for the period		6,879	4,110	11,594
Adjustments for:
Depreciation of property, plant and equipment		273	333	645
Amortisation of intangible assets		1,249	657	1,558
Finance income		(4)	(32)	(51)
Finance expense		963	1,514	2,908
Share based payments charges	3	336	135	416
Income tax expense		2,633	1,724	4,167
Cash flows from operating activities before changes in working capital and provisions		12,329	8,441	21,237
Changes in receivables		(1,181)	(1,312)	(2,221)
Changes in payables		2,022	170	(1,240)
Cash generated from operations		13,170	7,299	17,776
Income tax paid		(1,076)	(139)	(139)
Net cash from operating activities		12,094	7,160	17,637
Cash flows from investing activities
Disposal of business and assets		-	-	239
Acquisition of subsidiary net of cash acquired		-	(9)	-
Contingent consideration paid		(394)	(3,165)	(3,689)
Acquisition of property, plant and equipment		(178)	(49)	(392)
Acquisition of intangible assets		(2,695)	(1,700)	(4,586)
Net cash used in investing activities		(3,267)	(4,923)	(8,428)
Cash flows from financing activities
Proceeds from issue of share capital		-	2,906	3,062
New loans acquired		45	335	463
Interest and similar expenses paid		(959)	(1,482)	(2,858)
Repayment of borrowings		(2,082)	(2,070)	(4,084)
Dividends paid	6	(2,085)	-	(1,038)
Net cash used in financing activities		(5,081)	(311)	(4,455)
Net movement in cash and cash equivalents		3,746	1,926	4,754
Opening cash and cash equivalents		(11,113)	(15,867)	(15,867)
Closing cash and cash equivalents		(7,367)	(13,941)	(11,113)

  

Notes to the Interim Financial Statements

1. Accounting policies

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in this statement.

Basis of preparation

This unaudited consolidated interim financial information has been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively 'adopted IFRSs'). The same accounting policies, presentation and methods of computation are used in preparing the interim results as applied in the Group's latest Annual Consolidated Financial Statements except as described below.

The unaudited financial information presented in this document has been prepared on the basis of the expected accounting policies which the Group will comply with in the accounts to 31 December 2009 and on the basis of all adopted International Financial Reporting Standards, including International Accounting Standards ('IAS') and interpretations issued by the International Accounting Standards Board ('IASB') and its committees, as adopted by the EU. These are subject to ongoing amendment by the IASB and subsequent endorsement by the European Commission and are therefore subject to possible change. As a result, information contained within this release will require updating for any subsequent amendment to adopted IFRS required for first time adoption or those new standards that the Group may elect to adopt early.

The financial statements have been prepared in accordance with applicable accounting standards, and under the historical cost accounting rules, except for derivative financial instruments which are stated at their fair value.

The financial statements for the twelve months ended 31 December 2008 have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors on such accounts was unqualified, and did not include references to any matters to which the auditors drew attention without qualifying their report, and did not contain any statement under Sections 237(2) or 237 (3) of the Companies Act 1985.  

Basis of consolidation

Subsidiaries are fully consolidated from the date on which the power to control is transferred to the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Business combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 'Business Combinations' are recognised at fair value at the acquisition date.

Revenue recognition

Revenue represents sales to external customers at invoiced amounts less value added tax or local taxes on sales. These consist of:

• Revenue from temporary placements which represents amounts billed for the services of temporary staff including the salary cost of these staff. This is recognised when the service has been provided;
• Revenue from permanent placements is recognised at the date where an offer has been accepted by the candidate, except where the offer is contingent on future events which are outside of the Group's control. In these cases revenue is only recognised once any material contingencies have been resolved. A provision is made against accrued income for possible cancellations of placements by the candidate prior to the commencement of employment based on past experience of this occurring.

All revenue relates to the rendering of services.

Foreign exchange

Revenues generated by the Group entities in a currency other than the currency of the primary economic environment in which they operate (their 'functional currency') are recorded at the rates ruling when the transactions occur. Foreign currency receivables are retranslated at the rates ruling at each balance sheet date. Exchange differences arising on the retranslation of unsettled receivables are recognised immediately in the Consolidated Statement of Comprehensive Income.

Share based payment

The Group operates an equity-settled, share-based compensation plan. When share options are awarded to employees a charge is made to the Statement of Comprehensive Income recognising the fair value of the options issued over the vesting period. The options vest after a specific period (3 years for options issued from 2006 onwards, 1 year for options issued earlier). There are no vesting conditions, other than that the options lapse should the employee leave the Group. The cumulative expense is adjusted for failure to achieve non-market vesting conditions, such as an employee leaving.

        

Under this standard the credit entry for this charge is taken to Retained Earnings and reported in the Statement of Changes In Equity.

Pension costs

Contributions to the company's defined contribution pension scheme are charged to the Income Statement in the year in which they become payable.  

Taxation

The charge for current taxation is provided at rates of corporation tax that have been enacted or substantially enacted by the balance sheet date. Current tax is based on taxable profits for the year and any adjustments to tax payable in respect of previous years.

Deferred tax is provided, using the balance sheet liability method, on all temporary differences which result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. Temporary differences arise between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The exceptions, where deferred tax assets are not recognised nor deferred tax liabilities are not provided, are:

• At initial recognition of goodwill;
• The initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
• Taxable temporary differences associated with investments in subsidiaries where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Goodwill

Goodwill represents the excess of the cost of an acquisition of a business over the fair value of the identifiable assets, liabilities and contingent liabilities acquired. Goodwill is tested annually for any impairment and carried at cost less accumulated impairment losses. Any impairment charge would be included within administrative expenses in the Income Statement. Goodwill impairment charges cannot be reversed. As the Group has taken advantage of the exemption from restating all pre transition period acquisitions under IFRS 3 'Business Combinations', goodwill includes intangibles arising on those acquisitions that are not separately identifiable.

Other intangible assets

Intangible assets other than goodwill acquired by the Group as part of a business combination are stated at fair value and are amortised on a straight-line basis over their useful lives in accordance with IAS 38 'Intangible Assets'. The amortisation is shown as part of Administrative Expenses within the Consolidated Statement of Comprehensive Income.  

The estimated useful lives are as follows:

  Customer relationships  - 10 years

  Computer software        -  5 years

  Knowledge database     -  2 years

Costs that are directly associated with the production of the candidate databases are recognised as intangible assets. Direct costs include those of employees as well as external costs incurred identifying and recruiting the candidates. The costs of assembling a candidate database recognised as an asset are amortised as the related candidates accept employment offers. The amortisation is shown as part of Cost of Sales expenses within the Consolidated Statement of Comprehensive Income.

Intangible assets, other than goodwill, are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. When the carrying value of an asset exceeds its recoverable amount the asset is written down accordingly. Any impairment charge would be included within administrative expenses with the Consolidated Statement of Comprehensive Income, except for any impairment charge on the candidate database, which would be included within cost of sales.

Property, plant and equipment

Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs. All items are carried at depreciated cost.

Depreciation is provided to write off the cost, less estimated residual values, of all tangible fixed assets, evenly over their expected useful lives. It is calculated at the following rates: 

  Improvements to leasehold buildings -  term of lease

  Motor vehicles                                -  4 years

  Office and computer equipment        -  3 to 8 years

Leased assets

Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a 'finance lease'), the asset is treated as if it had been purchased outright. The amount initially recognised as an asset is the lower or the fair value of the leased property and the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to the Consolidated Statement of Comprehensive Income over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the amount owed to the lessor.

Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (as 'operating lease'), the total rentals payable under the lease are charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis.

The land and buildings elements of property leases are considered separately for the purposes of lease classification.

Financial instruments

The Group classifies its financial assets and liabilities into one of the following categories, depending on the purpose for which the asset or liability was acquired. The Group's accounting policy for each category is as follows:

Hedge accounting:  The Group holds a number of interest rate instruments, protecting a portion of the Group's borrowings against movements in interest rates. These derivatives have been valued at fair value at each balance sheet date and any movements in this fair value have been recognised in equity. Hedge accounting is applied to financial assets and financial liabilities only where all of the following criteria are met:

• At the inception of the hedge there is a formal designation and documentation of the hedging relationship and the group's risk management objective and strategy for undertaking the hedge.
• For cash flow hedges, the hedged item in a forecast transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect profit or loss.
• The cumulative change in the value of the hedging instrument is expected to be between 80-125% of the cumulative change in the fair value or cash flows of the hedged item attributable to the risk hedged (i.e. it is expected to be highly effective).
• The effectiveness of the hedge can be reliably measured.
• The hedge remains highly effective on each date it is tested. The Group has chosen to test the effectiveness of its hedges on a twice yearly basis.

The Group does not hold or issue derivative instruments for speculative purposes. 

Cash flow hedge: The effective part of the derivatives used to manage cash flow interest rate risk are measured at fair value with changes in fair value recognised directly in equity. The gain or loss relating to any ineffective portion is recognised directly in the income statement within finance expense or finance income line. 

Financial assets: 

Loans and receivables: These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of services to customers (trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value and subsequently at amortised cost. Impairment provisions are recognised where there is evidence that the Group will be unable to collect all of the amounts due under the terms receivable. Trade receivables are reported net of impairment provisions, which due to the nature of the customer base are insignificant. The Group's loans and receivables comprise trade and other receivables and cash in the Statement of Financial Position.  

Other financial liabilities:

Trade payables and other short-term monetary liabilities: These are initially recognised at fair value and subsequently at amortised cost.

Bank borrowings: These liabilities are initially recognised at the amount advanced net of any transaction costs directly attributable to the issue of the instrument. The costs of raising the financing are offset against the loan amount and are amortised over the term of the loan and are included within finance costs on the face of the Statement of Comprehensive Income.

Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks and short term borrowings which include bank overdrafts. Short term borrowings are shown within current liabilities on the balance sheet, and are included within cash and cash equivalents for the purposes of the Statement of Cash Flows.

Dividends

Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when the dividend is paid. In the case of final dividends, this is when approved by the shareholders at the AGM.

Share capital

Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The Group's ordinary shares are classified as equity instruments.

Changes in Accounting Policies

In the current financial year, the Group has adopted IAS 1, 'Presentation of Financial Statements' (Revised).

'IAS 1 Presentation of Financial Statements (Revised)' includes the requirement to present a Statement of Changes in Equity as a primary statement and introduces the possibility of either a single Statement of Comprehensive Income (combining the Income Statement and a Statement of Comprehensive Income) or to retain the Income Statement with a supplementary Statement of Comprehensive Income. The first option has been adopted by Healthcare Locums Plc. As this standard is concerned with presentation only it does not have any impact on the results or net assets of the Group.

 

2. Segmental Analysis

The group provides recruitment services for three types of health and social care staff, being Doctors, Qualified Social Workers (QSW) and Allied Health Professionals (AHP), and provides these staff on both a temporary basis and by permanent placements. The permanent placements can be of two types, the first of which is wholly UK placements whereby UK health and social care staff are placed within permanent positions within the UK. The second type is described as our International permanent placements, and includes staff brought in from overseas to fill permanent positions in the UK, staff moved from the UK to fill permanent positions outside of the UK, and staff moved from one overseas country to fill a permanent position in another overseas country. The group views these five types of business as its principal business segments. Revenues arise exclusively in the UK and are predominantly to public sector clients, except for the following permanent placement income: USA £210,000 (June 2008: £84,000; December 2008: £1,301,000), and Middle East £490,000 (June 2008: £133,000; December 2008: £840,000). The Board receives regular information on the revenue and costs of sales of each of its principal business segments; however it does not receive segment information on the costs below gross profit or on assets or liabilities.  

There is no reasonable basis by which overhead expenses, assets and liabilities can be 

allocated to the five segments and therefore no additional segmental information have been disclosed.

	Doctors			Qualified Social Workers
	6 months ended 30-Jun-09 £'000 Unaudited	6 months ended 30-Jun-08 £'000 Unaudited	Year ended 31-Dec-08 £'000 Audited	6 months ended 30-Jun-09 £'000 Unaudited	6 months ended 30-Jun-08 £'000 Unaudited	Year ended 31-Dec-08 £'000 Audited
Revenue
External sales	26,299	28,427	55,624	21,554	22,390	46,134
Result
Segment gross profit	7,045	4,169	12,587	5,122	4,785	9,797
Unallocated administrative expenses	-	-	-	-	-	-
Operating profit	-	-	-	-	-	-
Financing income	-	-	-	-	-	-
Financing costs	-	-	-	-	-	-
Profit before taxation	-	-	-	-	-	-

	Allied Health Professionals			UK Permanent Placements
	6 months ended 30-Jun-09 £'000 Unaudited	6 months ended 30-Jun-08 £'000 Unaudited	Year ended 31-Dec-08 £'000 Audited	6 months ended 30-Jun-09 £'000 Unaudited	6 months ended 30-Jun-08 £'000 Unaudited	Year ended 31-Dec-08 £'000 Audited
Revenue
External sales	35,563	26,856	59,386	895	599	1,398
Result
Segment gross profit	12,090	8,667	18,142	895	599	1,398
Unallocated administrative expenses	-	-	-	-	-	-
Operating profit	-	-	-	-	-	-
Financing income	-	-	-	-	-	-
Financing costs	-	-	-	-	-	-
Profit before taxation	-	-	-	-	-	-

	International Permanent Placements			Group
	6 months ended 30-Jun-09 £'000 Unaudited	6 months ended 30-Jun-08 £'000 Unaudited	Year ended 31-Dec-08 £'000 Audited	6 months ended 30-Jun-09 £'000 Unaudited	6 months ended 30-Jun-08 £'000 Unaudited	Year ended 31-Dec-08 £'000 Audited
Revenue
External sales	2,145	1,407	3,866	86,456	79,679	166,408
Result
Segment gross profit	1,535	1,154	3,096	26,687	19,374	45,020
Unallocated administrative expenses	-	-	-	(16,216)	(12,058)	(26,402)
Operating profit	-	-	-	10,471	7,316	18,618
Financing income	-	-	-	4	32	51
Financing costs	-	-	-	(963)	(1,514)	(2,908)
Profit before taxation	-	-	-	9,512	5,834	15,761

 

3. Administrative expenses before reorganisation costs

	6 months ended 30-Jun-09 Unaudited £'000	6 months ended 30-Jun-08 Unaudited £'000	12 months ended 31-Dec-08 Audited £'000
Administrative expenses before reorganisation costs include:
Amortisation of intangible assets charged to administrative expenses	466	393	805
Share scheme charges	336	135	416

 

4. Reorganisation costs

	6 months ended 30-Jun-09 Unaudited £'000	6 months ended 30-Jun-08 Unaudited £'000	12 months ended 31-Dec-08 Audited £'000
Reorganisation costs	439	-	1,397

        

The reorganisation costs incurred in 2009 mainly related to off shoring the back office functions to India and employee costs resulting from the restructuring.

 

 

5. Earnings per share 

	6 months ended 30-Jun 2009 Unaudited Number '000	6 months ended 30-Jun 2008 Unaudited Number '000	12 months ended 31-Dec 2008 Audited Number '000
Number of ordinary 10p shares
Weighted average number of shares	104,273	102,616	103,310
Dilution effect of share options	343	281	311
Weighted average number of shares used for diluted EPS	104,616	102,897	103,621
	£'000	£'000	£'000
Profit for the period	6,879	4,110	11,594
Add back: reorganisation costs	439	-	1,397
Add back: amortisation of intangibles	466	393	805
Add back: share scheme charges	336	135	416
Less: tax effect of reorganisation costs, amortisation and share scheme charges	(347)	(158)	(733)
Adjusted earnings for the period	7,773	4,480	13,479
	Pence	Pence	Pence
Basic earnings per ordinary share of 10p	6.6	4.0p	11.2p
Diluted earnings per ordinary share of 10p	6.6	4.0p	11.2p
Adjusted basic earnings per ordinary share of 10p	7.5	4.4p	13.0p
Adjusted diluted earnings per ordinary share of 10p	7.4	4.4p	13.0p

 

 6. Dividends

	6 months ended 30-Jun 2009 Unaudited £'000	6 months ended 30-Jun 2008 Unaudited £'000	12 months ended 31-Dec 2008 Audited £'000
Interim dividend of 0.8p (2008: nil) per ordinary share proposed and paid during the year relating to the previous year's results	834	-	-
Final dividend of 1.2p (2008: 1.0p) per ordinary share proposed and paid during the year relating to the previous year's results	1,251	-	1,038
	2,085	-	1,038

 

7. Financial Instruments 

The Group's principal financial instruments comprise bank term loans, bank overdraft facilities, invoice discounting facilities and cash.

The Group's bank loans, £13.3m as at 30 June 2009 (2008: £16.6m), are based upon LIBOR plus margin. The invoice discounting facilities, less cash and cash equivalents, £7.4m as at 30 June 2009 (2008: £13.9m), are based upon floating rates which are base rate plus margin.

The Group considers its capital to comprise its ordinary share capital, share premium, cash flow hedge reserve and accumulated retained earnings. In managing its capital the Group's primary objective is to ensure its continued ability to provide a growing return for its equity shareholders through a combination of capital growth and distributions. In order to achieve this objective the Group seeks to maintain a gearing ratio that balances risks and returns at an acceptable level and also to maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment needs. The Group's gearing ratio at the balance sheet date is shown below:

 

 

	30-Jun-09 Unaudited £'000	30-Jun-08 Unaudited £'000	31-Dec-08 Audited £'000
Cash in hand	(347)	(1,327)	(481)
Invoice discounting facility	7,714	15,268	11,594
Bank loans	13,290	16,643	14,991
Obligations under finance leases and hire purchase contracts	571	1,062	827
Net borrowings	21,228	31,646	26,931
Share capital	10,427	10,381	10,427
Share premium	34,324	34,214	34,324
Cash flow hedge reserve	(923)	113	(968)
Profit and loss account	21,719	9,862	16,589
Total capital	65,547	54,570	60,372
Gearing ratio	32%	58%	45%

 

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