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Kellan Group plc Half year interim report 2010

Kellan Group plc Half year interim report 2010


Financial summary

Sequential improvement in both Revenue and NFI of 3% from H2-2009

Revenue of 14.4m to 30 June 2010 (June 2009: 15.2m) and a loss for the period of 0.7m (June 2009: loss 3.2m)

Administrative expenses excluding amortisation, onerous leases and restructuring costs of 6.4m, 21.9% below H1-09 and 2.8% down on H2-09

Adjusted EBITA Loss of 0.2m (June 2009: Loss 1.6m) with the second quarter 2010 seeing business break even

Basic Loss per Share of 0.8p (June 2009: Loss 3.7p)

Cash out flow from operating activities 0.2m showing sequential improvement quarter on quarter (June 2009 1.0m)

Operational highlights

Seeing early stages of the recovery in key markets

Berkeley Scott our speciality hospitality business seeing strong recovery in chef and temporary markets

RK Accountancy permanent placement business recovering more rapidly than the temporary placement business. Introduced new line of business focusing on qualified finance staff in 3 locations.

Quantica Technology executing plan of organic growth opening a business in London

Fee earner levels increasing with total staff numbers increasing from 180 to 188 year on year

Continued focus on consolidation and cost base rationalisation with like for like costs decreasing sequentially despite investment in additional staff

New CFO appointed at the beginning of June

Chief Executive Officer's statement


Following a tough trading climate in 2009, improving macro economic signs as we entered 2010 together with feedback from our clients indicate we are at the early stages of a recovery in the recruitment cycle. However the majority of our clients continue to be cautious in terms of staff investments making it difficult to predict how this recovery will impact the traditional cycles of temporary and permanent recruitment. As a result forward visibility remains low and demand unpredictable.

We continue to focus on the core principles of our strategy, investing in key brands and selected specialisms where we act as a trusted advisor to our clients and candidates thereby enabling us to clearly differentiate from our competitors by the service we offer. Our investment in experienced consultants passionate to execute this strategy continues with staff numbers increasing to 188 and further investments identified as we enter the second half of the year.

We have great opportunities to increase market share in existing geographies as well as leverage our office infrastructure to develop existing specialisms in new geographies. With 28% of Net Fee Income ("NFI" being revenue less the cost of wages and fees paid to temporary workers and contractors) derived from offices in London & South East we are looking to expand our focus in this area. In line with this strategy Quantica IT opened a business in our existing London office during the first half of 2010 focusing on the Banking and Finance markets and RK Search and Selection opened a business focusing on procurement and logistics.

With permanent fee income representing 68% of group NFI we are looking to grow our temporary and contract lines of business at a faster pace than our permanent business so we can move the balance towards 50/50. We believe a more balanced income stream will better protect the group against the impact of economic cycles. With this in mind staff investment has been predominantly in temporary and contract fee earners.

Our overheads remain well controlled with a focus on working with suppliers to maximise value for money from all expenditure. As is inevitable with the group reducing headcount from over 300 in the first half of 2009 to below 180 in late 2009 we continue to carry office space in excess of requirements. Where it is unlikely this space will be filled in the near term we continue to look to exit from those properties in the most cost effective manner.

In June I was delighted to team up again with John Melbourne who joined the Group as CFO. John is one of the most talented finance executives working within the recruitment industry and in joining Kellan Group, John has shown just how highly regarded the business is and the strength of our strategy. His track record in acquisitions and expanding companies is exemplary, and I am confident that he will be an invaluable addition to the team.

As the outlook across our key markets improves we continue to invest in our people and strengthen our management team so the business is best positioned to capitalise on the opportunities increasingly present in our markets.

Financial Highlights

The Group's revenue for the six months to 30 June 2010 was 14.4m representing a decrease of 5.2% on June 2009 (15.2m) but an improvement of 3.0% on the six months to December 2009 (14.0m). This produced NFI of 6.2m for the six months to 30 June 2010 a decline of 7.1% on June 2009 (6.6m) but an improvement of 2.8% on the six months to December 2009 (6.0m).

Administrative expenses have reduced from 9.7m for the six months to 30 June 2009 to 6.7m in this half year, a reduction of 31.2%. Adjusting the cost base for exceptional items relating to onerous leases and restructuring costs together with amortisation of goodwill like for like costs have reduced by 21.9% year on year and 2.8% sequentially to 6.4m. Continued cost reductions have been achieved in the first half of this year despite the increase in consultant headcount.

Sequential growth in NFI combined with continued cost control translated to a significantly reduced loss for the six months of 0.7m (June 2009 3.2m) with the group nearing a break even position at EBITDA level in the period.

Net cash outflow for the 6 months to 30 June 2010 was 0.5m (0.8m, 6 months 30 June 2009). With costs reduced and trading increasing the operational cash flow has improved significantly on the six months to 30 June 2009 from an outflow of 1.0m to an outflow of 0.2m. The repayment schedules for loans and servicing of debt have been maintained throughout the period and in February 2010 the group raised 1.0m before expenses via the issue of a convertible loan note with the funds being used to strengthen the groups balance sheet.

Despite the improvement in trading, in light of our current working capital position it is expected that further funding will be required to meet the Group's working capital requirements over the next six months.

The plan for the remainder of 2010 is to focus the majority of our efforts on organic growth especially in the execution of the H2 business plans as we continue to invest in our people to ensure that we are best positioned to capitalise on market opportunities.

I would like to thank our management and staff as well as business associates and investors for their continued confidence in our Group and for helping us to move forward ahead of expectations, particularly during such a difficult time. We will continue to move forwards and grow the business whilst achieving new successes.


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