Network Group Holdings Results
Network Group Holdings Results
The Group encountered extremely difficult market conditions during 2009 as a result of the challenging economy. Following the activity of the Group in 2008 with the purchase and subsequent disposal of Pertemps People Development Group Limited ("PPDG"), the focus during 2009 was on guiding the Group through the challenging conditions. It is testament to the significant efforts of our business leaders and our staff that the Group was able to deliver an operating profit for the year.
Significant reductions were made in the Group's cost base, across both of the Group's core activities. Towards the end of the year the Group experienced an improvement in some of its market sectors.
In December 2008, the Group discharged the anti-embarrassment clause liability relating to the sale of PPDG. Under the anti-embarrassment clause, an element of the proceeds received from the sale were required to be passed back to the original shareholders in exchange for the shares in Network Group Holdings plc ("NGH") that were issued on the original acquisition of PPDG. The cash held in escrow and the shares held in the acquiring company, both of which were stated in the 30 November 2008 balance sheet, were used firstly to buy-back, and subsequently cancel, 39.9m shares in NGH and secondly, to purchase 6.5m shares in NGH into a newly-formed Employee Benefit Trust. NGH underwent a process of reducing its share premium prior to the buy-back and purchase of shares. The balance sheet of the Group at 30 November 2009 reflects the transactions described above. As I stated in my previous annual report, the Group retained 5.1m cash from the disposal proceeds of PPDG and a pre-disposal dividend, before the payment of costs of disposal and amounts payable as part of the original purchase.
In November 2009, the Group increased its portfolio of specialist recruitment agencies providing services to the public sector with the acquisition of Network Recruitment Solutions Limited, which specialises in the health and social care market. In line with the Group's partnering principles the Group acquired 51% and the management retained 49% with the ability to convert it into shares in NGH in the future. The Group issued 5 million new shares as consideration for the acquisition.
Also, in November 2009, the Board decided to dispose of two recruitment operations. Executive Network Legal Limited, which specialises in the placement of legal professionals, and Total Employment Limited, which specialises in placing workers into temporary industrial positions, were sold for 1 each following disappointing performances in 2009. In conjunction with the disposals, the Group received a repayment of the intercompany debts due to the Group from these companies, together with a repayment of the outstanding customer ledgers associated with these companies, resulting in an overall inflow of cash to the Group of 850,000.
In December 2009, the Group completed the conversion of a minority shareholding into shares in NGH. This resulted in the issue of 65,841 new shares in NGH at a value of 10,000.
The consolidated cash flow statement shows an increase in cash and cash equivalents of 364,000 and a reduction in borrowings of 5,739,000. The net debt of the Group at 30 November 2009 was 2,326,000, reduced from 8,429,000 at 30 November 2008.
The Group is currently, and is forecasting to continue, operating well within its current facility levels. The Group's current banking facilities expire in September 2010. The Directors have received confirmation that it is the Bank's current intention to continue to provide facilities both now and from September onwards. Consequently, the Directors have a reasonable expectation that the Group will have sufficient finance for the foreseeable future and as such continue to adopt the going concern principle.
This is first opportunity for a true comparison of annual results following the restructuring of the Group to facilitate the admission to AIM in 2007. As I stated in my last annual report, whilst we will continue to make acquisitions of specialist recruitment businesses, 2008 provided a base period for which meaningful like for like comparisons can be made.
The presentation of the Income Statement has been amended to present the results before the deduction of "Other items". Other items represent the credit / charge to the Income Statement in respect of the movement in the liability associated with the equity conversion mechanism, and the charge to the Income Statement in respect of the movement in the mark-to-market value of the Group's interest collar. The Board views these items in the Income Statement as non-operational accounting entries and therefore has chosen to present the Income Statement both before and after the inclusion of these figures.
The Income Statement shows the results split by continuing and discontinued operations. The discontinued operations for 2008 represent the profits generated by PPDG during the period of ownership and the profit generated by the disposal of PPDG. Whilst there have been disposals during 2009, the results are not classified as discontinued operations since they relate to the disposal of recruitment businesses, and recruitment continued as one of our two core activities.
A summary of the financial performance for the year ended 30 November 2009 is set out below, with a comparison to the year ended 30 November 2008:
Gross profit *
Operating profit *
Profit Before Tax *
Profit from Discontinued Operations
* The above amounts relate to the continuing operations of NGH
Profit before tax is stated before Other items, being the movement in value of the equity conversion mechanism liabilities, and the movement in value of the Group's interest rate collar.
The reported Profit for the Year, after Other items, is 3,693,000 (2008: 1,879,000). However the Income Statement includes a credit of 2,855,000 (2008: charge of 233,000) presented within Other items in respect of the movement in the value of the liabilities associated with the Group's equity conversion mechanism. The liability is calculated using the historical profits of the participating subsidiaries and with reduced profits from these subsidiaries, all within the recruitment sector, the value of the liabilities has reduced causing a credit to the Income Statement.
Revenue for the Group for 2009 was 15.4% lower than revenue for 2008. Gross profit of the Group for 2009 was 23.6% lower than gross profit for 2008. This reflects the challenging economic conditions in which the Group was operating during the year.
However, operating profit for 2009 was only 15,000 (1.4%) lower than operating profit for 2008 reflecting the decisive early management action, which significantly reduced the overheads, by the Group. Additionally, operating profit includes profit on disposal of 224,000 in 2009 and a loss on partial disposal of 220,000 in 2008.
Profit before tax before Other items was 272,000 (56.7%) higher than profit before tax before Other items in 2008 due to reduced finance costs in 2009.
The Group is experiencing an improvement in trading conditions in some of its market sectors, however we continue to remain cautious in our outlook, as the economic conditions remain challenging making it difficult to predict the current year with any certainty.
The overheads of the Group have been significantly reduced and continue to be monitored closely.
With the reduced cost base and the Group's diverse portfolio of business sectors, we believe the Group is well placed to take advantage of the upturn in the market.
During the year I was appointed as non-executive chairman, replacing Christopher Ross. I would like to thank all Board members for their contributions during a very difficult year.
Finally, I would like to extend my thanks to all of our business leaders and their staff for their contributions over the last year.
D J Waller