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Network Group Holdings plc - Full year results

Network Group Holdings plc - Full year results

The Board of Network Group Holdings plc announces that it will later today be posting the Annual Report and Accounts for the year ended 30 November 2010 to shareholders, which will also be available on the Company's website. Copies of the Annual Report and Accounts will be available for collection from the Company's Registered Office.

Financial Highlights

Revenue of 52.2m, an increase of 0.1m
Operating profit of 2.2m, an increase of 1.1m
Profit before tax of 1.9m, (before other items*), an increase of 1.1m
Adjusted earnings per share of 1.5 pence (before other items*), compared to 1.6 pence for the prior year

* Other items includes the movement in the value of the liabilities associated with the equity conversion mechanism, and the movement in the mark to market value of the Group's interest rate collar.

CHAIRMAN'S REPORT

Introduction

The Group experienced improved market conditions resulting in increased profit before tax before other items for the year of 1.9m compared to 0.8m in the previous year. The cost reductions that were implemented during 2009 were largely maintained through 2010 and together with the improvement in the business environment this has resulted in a much improved operating profit performance for the year.

The Group currently represents 21 specialist recruitment companies operating in a number of niche industry sectors including sales & marketing, health & safety, HR, management, finance, engineering, construction, IT, catering and health and social care together with a business process outsourcing division.

The UK is one of the largest recruitment markets in the world with revenues for the provision of permanent and temporary labour estimated to have been approximately 20 billion in 2010 with a government forecast of 25 billion for 2011. The trend coming out of a recession is usually to see an initial increase in the use of temporary workers.

Financial results

The presentation of the Statement of Comprehensive Income has been amended to present the results before "other items". Other items represent the credit or charge to the Statement of Comprehensive Income in respect of the movement in the liability associated with the equity conversion mechanism, and the credit or charge to the Statement of Comprehensive Income in respect of the movement in the mark-to-market value of the Group's interest rate collar. The Board views these items as non-operational accounting entries and therefore has chosen to present the Statement of Comprehensive Income both before and after the inclusion of these figures.
A summary of the financial performance for the year ended 30 November 2010 is set out below, with a comparison to the year ended 30 November 2009:
2010 2009
000 000
Revenue 52,233 52,136
Gross profit 19,149 18,302
Operating profit 2,196 1,088
Profit Before Tax 1,919 752
Adjusted earnings per share 1.5p 1.6p
Net debt 3,137 2,326
Profit before tax and adjusted earnings per share are stated before other items, as noted above.

The reported profit for the year, after other items, is 3,805,000 (2009: 3,693,000). However the Statement of Comprehensive Income includes a credit of 2,301,000 (2009: 2,855,000) presented within other items in respect of the movement in the value of the liabilities associated with the Group's equity conversion mechanism. As a result of the contractual changes described later in this report the Group does not anticipate similar items appearing in the Statement of Comprehensive Income in the foreseeable future.

Revenue for the Group for 2010 was 0.2% higher than revenue for 2009 whilst the gross profit of the Group for 2010 was 4.6% higher than gross profit for 2009. This reflects the change in mix of temporary and permanent recruitment and also the increase in revenue from the business process outsourcing division.

Operating profit for 2010 was more than double that for 2009, an increase of 102% reflecting the increase in gross profit and the full year effect of the reduction in Group overheads actioned during 2009. Operating profit includes profit on disposal of subsidiaries of 154,000 in 2010 compared to 224,000 in 2009. The Group has generated an increased gross profit on a leaner cost base compared to 2009.

Profit before tax and other items was 1,919,000 compared to 752,000 in 2009. This is an increase of 155%.

The profit before other items attributable to the shareholders of NGH has remained relatively constant at approximately 1m due to a combination of an increased corporation tax charge and an increased amount attributable to non-controlling interests.

Corporate update

In December 2009 the Group increased its portfolio of specialist recruitment agencies operating in the IT sector with the acquisition of The IT Recruitment Network Limited. The business was subsequently merged with one of the Group's existing IT operations. During July 2010 the Group acquired the business of Network OPEN, which further increased the Group's exposure to the health and social care sectors. In July 2010, the Group disposed of T.E.N (The Education Network - Employment Services) Limited, a recruitment business which operated in the education sector, to the Pertemps group.
In December 2009, the Group completed the conversion of a minority shareholding into shares in Network Group Holdings Plc ("NGH"). This resulted in the issue of 65,841 new shares in NGH at a value of 10,000.
During the year the Group issued a further 1,925,964 shares in NGH in consideration for an increased shareholding in four subsidiary undertakings. The final consideration payable in respect of the increased shareholdings is based on the final profits of the relevant subsidiary for the financial year ended 30 November 2010 and therefore approximately a further 193,000 shares in NGH will be issued following the approval of this annual report.
Following the year end date, and as announced on 5 May 2011, the Group acquired three further businesses. In April 2011, the Group acquired a controlling stake in the business of Sheridan Maine, specialising in accountancy and finance recruitment, and also acquired a majority stake (with the intention of diluting immediately to a minority stake) in the business of Options Network, specialising in construction and engineering recruitment. In May 2011, the Group acquired a controlling stake in Network Professional Recruitment Limited, a recruitment business specialising in the financial services and insurance sectors.

Equity conversion mechanism

In the report and accounts for the year ended 30 November 2009, it was stated that the Directors were in the process of renegotiating the agreements in respect of the equity conversion mechanism. The new agreements were finalised during the year and consequently the accounting treatment has changed as a result of the revised contractual position such that the Group no longer recognises the liability on the Statement of Financial Position. Previously, the liability was calculated using the historical profits of the participating subsidiaries with the movement in the value of the liabilities resulting in an entry in the Statement of Comprehensive Income.
A credit of 2,301,000 has been recognised in the Statement of Comprehensive Income in the year, within other items, resulting from the extinguishment of the liability.

Banking facilities

In my report for the Interim results I stated that the Directors had received agreement in principle for further banking facilities running until March 2013. These agreements were finalised in November 2010 and will provide adequate finance to further expand the Group.

Outlook

The current financial year has started positively with profitability ahead of the same stage last year. The general recruitment environment is showing signs of growth and the Board look forward to the remainder of the year with some optimism.

The Group is continually looking for acquisition opportunities and is currently actively working on three.

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
Chairman

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