Healthcare Locums plc has announced its Interim Results
Healthcare Locums plc
Interim Results for the six months ended 30 June 2011
Healthcare Locums plc a market leader in Australia & the UK in the supply of high quality workforce solutions to the health and social care sectors, today announces unaudited results for the six months ended 30 June 2011.
HCL reports as expected underlying results in a challenging environment and, following shareholder approval of the refinancing on 12 September, is well positioned for improved performance over the medium term.
Business Challenges & the new Board's response
§ HCL has an experienced new Board and executive management team which was formed during the first half of 2011.
§ Challenges faced since the beginning of 2011 have been considerable. The new Board has needed to extensively restate prior year figures as set out in the 2010 Annual Report, refinance the Group to ensure future stability and plan the re-engineering of the UK business to meet the significantly changing needs of the healthcare staffing market.
§ Inevitably the new Board has been unable to implement a number of its planned actions until the refinancing had been secured due to lack of cash and an inability to commit future funds. However, following the approval of the refinancing by shareholders, the Board now believes that HCL is in a far stronger position to respond to the changing needs of its UK customers by significantly re-engineering its UK business model and is well positioned for improved performance over the medium term
UK & Australian businesses
§ In the UK, HCL is a leading business one capable of generating good levels of profit by delivering a high level of service on competitive terms to the NHS and private sector. It remains a top-three healthcare staffing provider and the new executive team is committed to substantially improve the business model, to address changing market dynamics.
§ In Australia, the HCA business, which was acquired in December 2010, has since its acquisition continued to trade in line with expectations.The Board's goal is to build a broadly based specialist healthcare recruitment business in Australia, similar to HCL's position in the UK.
§ The Board believes that operational benefits can be achieved over time by owning both the UK and Australian healthcare recruitment businesses.
Refinancing & Recommencement of Trading of shares on AIM
§ Since their appointment in early 2011, it has been the Directors' priority to stabilise the Group's capital structure by reducing debt, including funds received from the disposal of the Homecare Division in Australia in July 2011 and raising further funds for working capital.
§ On 19 August 2011 the Board announced a refinancing plan, including a £60m placing, This was approved by shareholders in a General Meeting on 12 September 2011 and was accompanied by an open offer which raised a further £0.95m.
§ Trading in the Company's shares resumed on 13 September 2011 following the approval of the refinancing.
Consolidated Income Statement
Gross Profit %
Adjusted EBITDA *
Adjusted Profit/(Loss) from operations **
Others (net) **
(Loss)/Profit from operations
Foreign exchange gains (net)
Finance expense (net)
(Loss)/Profit before taxation
(Loss)/Profit for the period from continuing operations
Profit for the period from discontinued operations, net of tax
(Loss)/Profit for the period
Basic earnings per share from continuing operations (pence)
Adjusted EBITDA is adjusted Profit / (loss) from operations before depreciation of property, plant and equipment, amortisation of intangibles and share scheme charges.
Adjusted Profit / (loss) from operations refers to Profit / (loss) from operations before impairment of goodwill and other highlighted items as analysed in Note 8 to the Interim Results.
Commenting on the results, Stephen Burke, Chief Executive, said:
"We anticipated difficult markets and continue to take timely action to ensure we are able to respond effectively to our clients' changing demands, These underlying results demonstrate the Group's resilience as it has performed to our expectations in challenging conditions.
Our UK and Australian footprints mean that we are well positioned for improved performance."
The unaudited Interim Results for the six months ended 30 June 2011 are being issued to shareholders 6 weeks after the 2010 Annual Report and Accounts ("Annual Report") were published on 19 August 2011.
As shareholders will be aware, on 25 January 2011 the Board announced the suspension of its shares from trading on AIM with immediate effect. The announcement stated that the Board had strong reason to believe that the financial performance of HCL for the year ended 31 December 2010 would be materially below expectations. Serious accounting irregularities had been brought to the attention of the Board as a result of which the Company announced that it would be carrying out an immediate investigation to consider the financial implications.
Since then an entirely new Board has been appointed. David Henderson and I were appointed on 18 February 2011. We were pleased to be joined on 10 May 2011 by Stephen Burke as Chief Executive Officer, Colin Whipp as Interim Chief Financial Officer and Andy McRae as Managing Director of Healthcare Australia Holdings Pty Limited.
Results of the investigations
Following the announcement on 25 January 2011, and, as already reported to shareholders, there was an internal investigation into the serious accounting irregularities, the circumstances surrounding their existence and the financial implications for the Group.
As already reported to shareholders, the principal findings of the internal investigation and other reviews by the Directors and the corrective actions taken resulted in a reduction of net assets at 31 December 2009 from the previously reported £67.2m to the restated £50.0m, a reduction of 26%.
Additionally, the unaudited results for the six months ended 30 June 2010 have had to be restated, as explained in the Financial Review.
The Board has sought to ensure that appropriate remedial measures have been taken. New processes have been put in place so that monthly management accounts can be relied upon in the future.
Further information about the investigations and the findings is provided in the Chairman's Statement on pages 2 and 3 in the 2010 Annual Report, which may be viewed on the HCL website www.hclplc.com.
The Board, with its legal advisers, is currently considering how best to progress any claims that the Company may be able to bring in connection with the matters described above. The Board continues to reserve its rights, to take apporopriate action.
Disposal of Homecare Division in Australia
On 18 July 2011, as a first major step in reducing the Group's debt levels, the Directors were pleased to announce that the Company's wholly owned Australian subsidiary, Healthcare Australia Holdings (Pty) Ltd ("HCA") had completed the sale of its Homecare Division. The gross consideration was A$34m (approximately £22.4m). The net proceeds of the sale (after estimated expenses of A$2m) have been used to reduce the Group's debt. The sale is estimated to have a generated a gain of £2.7m after expenses which will be accounted for in the 2011 annual results.
As further explained in the Financial Review, the Homecare Division has been treated as a discontinued operation in the Interim Results.
Results for the six months ended 30 June 2011
As analysed in the Results Summary in the Financial Review, the Board reports adjusted EBITDA from (continuing operations) of £3.7m (2010 H1: £2.7m, 2010 year : £(0.2)m Loss). After highlighted items of £9.7m (2010 H1: £0.2m, 2010 year: £49.1m, the Loss before taxation from continuing operations was £19.0m (2010 H1: £0.8m profit, 2010 year: £56.5m loss ) .
As previously reported, during 2010 the Group's previous strategy in the UK of operating largely by contracts not governed by Framework Agreements (FAs) left it wrong-footed and ill-prepared to respond sufficiently to the increasing focus of NHS spending through purchasing FAs, which typically have a lower margin than off-framework business. The previous Board's failure to respond to the changing market place meant firstly that the business had an inadequate supply of locums clinically compliant with the more detailed and onerous framework standards and secondly that it had access to only a restricted number of FAs.
As explained in the Operational Review, the like-for-like * impact on the UK business in 2011 H1 compared with 2010 H2 was a reduction in revenue of 18% and gross profit of 17%. The UK's gross profit percentage rose slightly from 24% to 25%.
* adjusting 2010 H2 as though the acquisitions made during that half year had been made on 1 July 2010.
Your new Board has taken initial measures to re-engineer the UK business model to ensure that it is adapted to accommodate the significant changes in its market place. Inevitably the new Board had been unable to implement a number of its planned actions until the refinancing had been secured due to lack of cash and an inability to commit future funds. However, following the approval by shareholders of the refinancing, it is now possible to undertake these required changes and investments.
A more detailed review of the financial information for the period is provided in the Financial Review.
As a result of the Group's constrained financial position and the Company's distributable reserves being in deficit at 30 June 2011, the Board is not proposing an interim dividend (2010: 1.8p).
The Board of HCL comprises three Executive Directors and two Non-Executive Directors, all of whom joined after 25 January 2011.
As previously reported to shareholders, the Interim Chief Financial and Restructuring Officer, Colin Whipp, has announced that following the successful stabilisation and recapitalisation of HCL he will be stepping down. The publication today of the Interim Results concludes Colin's duties. He has quickly and effectively identified and tackled the extremely complex financial challenges faced by the Group and his work has been essential in securing the long-term future of the business. The Board and I thank Colin for his significant contribution and wish him well.
As separately announced today, as from 1 October 2011 Bill Jessup will be the Interim Chief Financial Officer. Bill is a Chartered Accountant and has been the CFO of a number of quoted companies on both a permanent and interim basis, most recently at Ricardo PLC. He has previous experience in the UK healthcare recruitment sector as a non executive director of Blue Group for five years before it was acquired by HCL in 2006.
As from the 1 October 2011 Mark Andrews, aged 59, will join the board as Non-Executive Director.Mark was until 2011 a partner specialising in restructuring at SNR Denton UK LLP and was head of the firm's Restructuring Group in the UK for 20 years until 2010. Mark remains a consultant to SNR Denton UK LLP and is a council member of the Association of Business Recovery Professionals.
Following the completion of the refinancing and as previously reported, the Board has commenced the process of recruiting a permanent Chief Financial Officer and is seeking to appoint an additional non-executive director.
The Board will update shareholders in due course.
As I explained to shareholders in the 2010 Annual Report, on joining as Chairman it was evident that there were extremely poor levels of Corporate Governance.
The new Board is committed to maintaining high standards of Corporate Governance.
Having already implemented several changes I will be reporting to shareholders in the 2011 Annual Report on further developments in the Group's Corporate Governance.
Refinancing & Restoration of trading in the Company's shares
On 19 August 2011 the Board announced a substantial refinancing designed to secure the Company's future. The Board of HCL was pleased that all the resolutions proposed at the General Meeting held on 12 September 2011 were duly passed by shareholders. Accordingly the refinancing was completed and trading resumed in the Company's shares on 13 September 2011.The refinancing put it on a solid financial footing and provided it with the requisite cash and debt resources and capital structure to give it the capability to generate significant returns and enable trading in the Company's shares on AIM to be resumed.Further information on the refinancing is provided in Note 19 (iv) to the Interim Results.
Note 19 (iv) to the Interim Results reports the unaudited pro-forma illustrative balance sheet. This shows the impact that the refinancing and the sale of the Homecare Division would have had the balance sheet at 30 June 2011, had they occurred before 30 June 2011. Net debt falls very substantially from the £ 121.2m reported at 30 June 2011 to £ 23.9m on the pro-forma basis.
Since the announcement on 25 January 2011 of the suspension of the Company's shares from trading on AIM, the Group has faced considerable challenges. However, the Board is pleased to report that significant progress has been made. The investigations have been completed, accounts restated and senior management changed. The re-financing, approved by shareholders, has removed a major risk facing the Group.
With these issues behind us, management is now concentrating on resolving the outstanding issues relating to past performance on NHS contracts described in the 2010 Annual Report, re-engineering the UK business and adapting it to the changing demands of its customers. Initiatives to improve business processes, business systems and corporate governance are continuing.
In Australia, we have good prospects for growth through extending our offering into Allied Health Professionals on a national basis, rolling out our existing doctor locum business across the country and further developing the nurse agency activities in the Eastern States.
With the re-financing complete, the Board and I remain confident that HCL can grow and prosper.