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Kellan Group Results - strong resilience in poor market conditions.

Kellan Group Results - strong resilience in poor market conditions.

Kellan Group PLC has announced its preliminary results for the group for the 12 month period ended 31 December 2012.

Headline figures

&middot Operating loss narrowing from &pound5.4 million in 2011 to &pound2.1 million in 2012.

&middot Continued streamlining with administrative expenses (including impairment) reducing by 34% year on year from &pound16.3 million in 2011 to &pound10.8 million in 2012. Non-cash impairment of goodwill and intangibles reducing from &pound5.00 million in 2011 to &pound1.07 million in 2012.

&middot Loss of 1.92 p per basic and diluted share (2011 - loss 5.72 p).

&middot In September 2012, &pound0.65 million of loan notes converted to equity, &pound1.40 million raised through share subscription and &pound1.26 million facility put in place at interest rates that are more favourable than the existing bank senior debt. The &pound1.26 million facility is being draw down in line with the repayments of the bank senior debt.

&middot Interim &pound0.6 million unsecured related party loan facility arranged in March 2013 pending Group recapitalisation.

&middot Fundraising of &pound1.5 million, comprising &pound0.9 million in equity and &pound0.6 million in unsecured convertible debt is at an advanced stage of discussion with the Company's largest shareholder.

Chairman's Statement

2012 was a year in which the recruitment market continued to be affected by the slow-moving UK economy. The opportunity for growth during 2012 has been a particular challenge and the Group has demonstrated strong resilience in poor market conditions. With the diverse nature of the Kellan Group as a business, we have displayed intelligence in difficult trading conditions, focusing our core efforts on increasing market share in the sectors in which we operate.

The Group's operating loss for 2012 narrowed to &pound2.17 million compared to &pound5.45 million in 2011. Continued focus on streamlining administrative expenses (including impairment) resulted in a year on year saving of 34% from &pound16.3 million in 2011 to &pound10.8 million in 2012.

With Ross Eades stepping down from Chief Executive Officer to Non-executive Director in March 2013, I have assumed the role of Executive Chairman, meaning that I am fulfilling the role of strategic leader for the Kellan Group. This confirms my commitment to the business is absolute, as is the Group's Board. Together with Rakesh Kirpalani and Mark Darby, who has taken on a wider operational leadership role within the Group, we have adopted a very open and frank means of communication and are extremely confident of future prospects. This is evident by the continued financial support and investment in Kellan, combined with the recognition and implementation of necessary changes within the Group.

We have proactively controlled our cost base by consolidating locations and renegotiating with suppliers where appropriate resulting in the Group being streamlined for expansion. We are now in a position to focus on areas of the business where we have expertise and are able to create critical mass to achieve attainable growth.

The Group has realigned the Leadership & Management team to ensure we have the right people in the right roles, creating a robust operational infrastructure to provide support to everyone across our business.

The Kellan Group has a number of strong niche brands with strong sector focus and expertise, driven by strong and passionate leadership. We have added a cohesive, supportive and proactive highly visible Group influence to that mix and created an exciting and successful future for all those involved in the Kellan Group.

Fundraising of &pound1.5 million, comprising a proposed &pound0.9 million in equity and &pound0.6 million in unsecured convertible debt, which will replace the &pound0.6 million interim related party loan facility arranged on 21 March 2013, is at an advanced stage of discussion with the Company's largest shareholder. This fundraising along with the recent steps to restructure the operational structure of the Group, which will yield an annualised saving of circa &pound0.59 million per annum, puts the Group in a good position to deliver improved results.

John Bowmer and James McHugh stepped down from Non-executive Director roles in Q4 2012 to pursue their overseas business interests and I would like to thank them both for their contributions to the Group.

Business review

With the UK recruitment market being very inconsistent with some specialist sectors doing significantly better than others, the Group has proactively taken the opportunity to ensure it is in the strongest position possible. We have implemented a positive restructure into the business to make certain that the businesses within the Group are in the best position to maximise market share as and when the opportunity arises, while maintaining a clear focus on controlling and further reducing our cost base. Our clear strategy is to invest in growth markets and niche sectors ensuring the most productive return on investment. The diverse brands within the Group de-risk the overall impact of an inconsistent market, and we saw some strong performances from our hospitality and technology brands, while the professional services brands have faced numerous challenges in the last year.

Berkeley Scott continues to be a market leader in the hospitality and leisure markets. The brand has shown great strength especially in the senior appointment and general management market with the new finance division generating some strong market traction. The temporary divisions enjoyed new business and increased revenue due to high profile events such as the Olympics, Paralympics and Queen's Jubilee, and the northern division has successfully expanded into the Warrington market place winning vital new business. The main challenges that Berkeley Scott now face is the competition from direct hires and smaller specialist agencies and the pressure on reduced margins due to such a competitive marketplace.

Quantica Technology,the Group's specialist IT Division, has continued to build it's presence in London & regional UK operations with increased revenue streams from mainland Europe, in particular Germany & Switzerland. Continued growth in all niche areas has given the business increased confidence in what is an extremely competitive market. 2013 has started very well for Quantica Technology with increased fees coupled with costs being managed effectively helping to ensure that the brand will continue to grow in carefully identified markets.

The RK and search brands had a difficult second half in 2012 but are showing promise under new leadership with a clear focus on the specialist markets they work in. RK Accountancy and RK Finance are gaining a valuable reputation with the key message of local finance specialists in the North of England. RKHR Professionals has enabled strong cross selling opportunities for the Group. Quantica Search and Selection is winning new business and maintaining its reputation as a food manufacturing recruitment specialist in the northern regions, an area of targeted growth and investment for our business.

I would also like to thank our increasingly loyal customer base and our shareholders for their invaluable support throughout 2012. 2013 has begun in a similar fashion as the end of 2012 - with market conditions still displaying a hesitant and unpredictable trading environment. We have been vigilant at managing costs and cash whilst being acute to increase market share in our respective markets. During this challenging time, I would like to thank the Group's staff for their unwavering passion, flexibility and willingness to develop and enhance our core businesses. I would also like to thank them for their undeniable patience, commitment and loyalty to the Group.

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