RNS Number:2681P
Corporate Services Group PLC
04 March 2008
THE CORPORATE SERVICES GROUP PLC
PRELIMINARY RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2007
The Corporate Services Group PLC ("CSG", or "the Group") a leading supplier of
staffing solutions, announces its preliminary results for the year ended 31
December 2007.
Financial highlights
* Turnover up 9.6% to �585.4 million (2006: �533.9 million*)
* Gross profit up 7.8% to �112.9 million (2006: �104.8 million*)
* Administrative expenses up 4.1% to �101.7 million (2006: �97.7 million*)
* Operating profit, before exceptional items, �11.2 million
(2006: �7.1 million*)
* Profit before tax and exceptional items �6.5 million (2006: �2.4 million*)
* Exceptional goodwill impairment �19.1 million
* Adjusted earnings per share 0.70p (2006: 0.22p*)
* Unadjusted loss per share 1.16p (2006: profit 0.16p*)
* Net debt �54.7 million (2006: �52.7 million)
Operational highlights
* UK commercial staffing sales up 17.4% and EBIT increased by 105.3%
on last year
* UK healthcare staffing sales up 21.3% and EBIT increased by 47.7%
on last year
* US commercial staffing sales up 1.2% and EBIT increased by 30.0% on last
year (as measured in local currency)
* UK vendor procurement sales up 25.4% on last year
* Gross profit converted to EBIT up 310 basis points to 9.9% (2006: 6.8%)
Noel Harwerth, Acting Chairman of CSG, commented:
"The Group had a good year in 2007 with each of its four business segments
reporting improved revenues, margins and underlying operating profits in the
year compared to 2006. On 7 February 2008, we announced the possible merger of
the Group with Carlisle Group. We believe that such a merger makes good sense
both commercially and financially and would, if implemented, provide a robust
platform for acquisitions and growth in the future."
* as restated in accordance with Note 2 to this report
For further information please contact:
The Corporate Services Group PLC
Desmond Doyle - Group Chief Executive Tel: 01592 692658
Andrew Burchall - Group Finance Director Tel: 01592 692658
Naomi Stuart - Group Marketing and Communications Manager Tel: 01582 692624
Landsbanki Securities (UK) Ltd
James Wellesley Wesley Tel: 020 7426 9000
Bell Pottinger Corporate & Financial
Nick Lambert Tel: 07811 358 764
Sarah Williams Tel: 07904 932 904
As previously announced, a conference call with analysts and investors in
respect of the Group's preliminary results for 2007 will be held at 10.00a.m.
today.
Note to Editors:
The Corporate Services Group PLC, listed on the London Stock Exchange, is a
leading provider of staffing solutions with established operations in the UK,
the US, Australia and New Zealand.
CSG operates through a number of trading brands, each targeted towards specific
niche markets. These include Blue Arrow, Medacs, Blue Arrow Catering, Blend, ABC
Contract Services, MTS, Chrysalis Community Care, Austin Benn and Comensura in
the UK and CORESTAFF, InfoCurrent, AccountCore, Leafstone, CareerTrust and The
Guidant Group in the US.
Overview 2007
The Group had a good year in 2007 with each of its four business segments
reporting improved revenues, margins and underlying operating profits in the
year compared to 2006. Whilst total revenue increased 9.6%, we are particularly
pleased with the strong growth in our UK commercial staffing and UK Healthcare
staffing businesses up 17.4%, and 21.3% respectively compared to 2006. Overall,
gross profit has increased by 7.8% while operating profit, before exceptional
items, has risen by 58.1% to �11.2 million. This performance has been achieved
with a limited increase in administrative expenses, before exceptional items, of
4.1%, reflecting our consistent view that the issues facing the Group were more
internal than market related. Allowing for the Group's differing mix in
temporary and permanent business, we believe that we are now operating at
efficiency levels comparable to the competition.
The structural changes implemented in 2005 to create more autonomous brands with
entrepreneurial management were part of a three year plan to address the
internal issues of poor sales generation and low productivity. With this phase
now largely complete, attention has been focused on a review of the business
portfolio and strategic options to reduce the level of debt within the Group.
Plans to float a minority holding in our Comensura business were deferred due to
the discovery of certain rebates and provisions that should have been accounted
for in prior years. Controls were tightened as a result.
On 7 February 2008, we announced the possible merger of the Group with Carlisle
Group Limited and an intention for the shares of the enlarged group to be
admitted to the Alternative Investment Market ("AIM"). We believe that such a
merger makes good sense both commercially and financially and would, if
implemented, provide a robust platform for acquisitions and growth in the
future. It would also create one of the UK's largest staffing and support
services companies with revenues approaching �1.0 billion. A move to AIM is
also appropriate given the size and market capitalisation of the enlarged Group.
Work on the possible merger is ongoing; we hope to update shareholders soon.
On behalf of the Board, I would like to thank our staff for all of their hard
work and continuing contribution as part of a successful and profitable
recruitment business.
Financial results
Year ended 31 December 2007 2006* Growth
�m �m %
Turnover 585.4 533.9 9.6
Gross profit
Temporary Staffing 94.7 88.1 7.5
Permanent Staffing 12.6 12.3 3.2
Procurement 5.6 4.4 25.4
112.9 104.8 7.8
Administrative expenses (^) 101.7 97.7 4.1
EBIT (^) 11.2 7.1 58.1
Gross profit percentage 19.3% 19.6%
EBITDA return on sale (^) 2.3% 1.8%
Conversion ratio (EBIT as a % of 9.9% 6.8%
Gross Profit) (^)
Temporary margin 16.7% 17.0%
Permanent fees % GP 11.2% 11.7%
* as restated in accordance with Note 2 to this report
(^) excluding exceptional items
Turnover for the year increased by 9.6% to �585.4 million (2006: �533.9 million
*). All of the business segments increased turnover in the year. These
include: a 17.4% increase in UK commercial staffing; a 21.3% increase in UK
healthcare staffing; a 1.2% increase in US commercial staffing, measured in
local currency; and a 25.4% increase in UK vendor procurement.
Gross profit increased 7.8% to �112.9 million (2006: �104.8 million*) reflecting
growth of 7.5% in temporary staffing, 3.2% in permanent staffing and 25.4% in
procurement. Permanent fees now comprise 11.2% (2006: 11.7%*) of gross profit.
Overall, the Group's gross profit margin percentage decreased 30 basis points to
19.3% (2006: 19.6%*) with the margin on temporary assignments decreasing 30
basis points to 16.7% (2006: 17.0%*). Administrative expenses, before
exceptional items, continue to be tightly controlled and showed a modest
increase of 4.1% to �101.7 million (2006: �97.7 million*).
The resulting operating profit for the year, before exceptional items, was �11.2
million, an improvement of �4.1 million when compared with last year's profit of
�7.1 million*. Of the �8.1 million incremental increase in gross profit in the
year, over 50% has been converted to EBIT resulting in an increase in our
conversion rate to 9.9% (2006: 6.8%*).
After deduction of normal financing charges of �4.7 million (2006: �4.7
million *), the profit before tax and exceptional items was �6.5 million
(2006: �2.4 million*).
After a tax credit of �1.1 million (2006: �nil) the profit for the year, before
exceptional items, was �7.6 million, an increase of �5.2 million when compared
to a profit of �2.4 million* in 2006.
Exceptional items in the year relate to a �19.1 million impairment of the
goodwill balance attributable to our US businesses. The impairment has arisen
due to the continued weakness of the US dollar relative to sterling and a
softening of our internal growth projections for the business. This softening
reflects uncertainty over the future prospects for the US economy rather than
any current underlying weakness in our business relative to the market.
Exceptional items also include a finance expense of �933,000 (2006: �650,000)
related to the early redemption of �15.0 million (2006: �10.0 million) of the
Group's 10% Guaranteed Secured Loan Notes.
The loss attributed to shareholders was �12.4 million (2006: profit
�1.7 million*). Adjusted earnings per share are 0.70p (2006: 0.22p*), unadjusted
loss per share is 1.16p (2006: profit per share 0.16p*).
Net debt increased by �2.0 million to �54.7 million as at 31 December 2007
(2006: �52.7 million) in line with trading activity. In addition, the Group has
outstanding letters of credit drawn against its US facilities amounting to �6.2
million (2006: �7.2 million). The Group continues to operate comfortably within
the headroom provided by its current bank facilities both in the UK and the US.
Strategy
The Board remains committed to ensure that, over time, the Group is better
placed to weather the wider economic cycles to which it is exposed, as well as
positioning it as a more attractive business within its marketplace. To achieve
this, the Board believes that it is important that the Group reduces its levels
of indebtedness from its current level to more industry normal levels over the
medium term. Mindful of this, and following the decision not to progress with a
possible flotation of Comensura as originally anticipated, the Board has
reviewed the strategic options available to it.
On 7 February 2008, the Board announced the possible merger of the Group with
Carlisle Group Limited. The Board believes that a merger of these two businesses
would be a good fit commercially, with many complementary and few overlapping
businesses, as well as philosophically, as both groups run a portfolio of brands
each targeted at a specific market. In addition, a merger would also present
opportunities to reduce costs by rationalising back office and support functions
from both organisations, where appropriate. While such a merger would reduce
indebtedness from the current net debt level of 4.0 times EBITDA(^), it remains
the Board's longer term intention to reduce net debt to no more than 2.5 times
EBITDA. Consequently, the Board will continue to actively review its portfolio
of businesses to determine whether it remains appropriate to retain or sell
them, with a view to generating cash for the repayment of indebtedness.
As a part of the possible merger, it is intended that the shares in the enlarged
Group should be admitted to AIM. A listing on the AIM market is considered more
appropriate given the size and market capitalisation of the enlarged Group.
Commercial staffing - UK
Our UK commercial staffing business segment consists of three brands; Blue
Arrow, which operates in four sectors (office and industrial, managed services,
driving, and catering); Austin Benn (search and selection); and ABC Contract
Services (construction). While each of these brands has its own management
team, ethos, culture, values and business plans, they are now overseen by Stuart
McBride in the newly created position of Chief Executive, UK Commercial
Staffing, to ensure that common processes and best practice are shared.
Year ended 31 December 2007 2006 Growth
�m �m %
Turnover 306.2 260.8 17.4
Gross profit 56.8 49.9 13.8
Administrative expenses 51.2 47.2 8.6
EBIT 5.6 2.7 105.3
Gross profit percentage % 18.6% 19.1%
EBITDA return on sale % 2.3% 1.6%
Conversion ratio (EBIT as a % of 9.9% 5.5%
Gross Profit)
Permanent fees % GP 17.3% 18.8%
We are pleased to report that turnover in this segment increased 17.4% to �306.2
million (2006: �260.8 million), a performance the Board believes to be ahead of
the market. Importantly, the rate of growth in the second half of the year was
21.5%, compared to 12.7% in the first half. This increase reflects improved
performances in each of the temporary staffing businesses that comprise the
segment. Only in Austin Benn, one of our permanent placement businesses, was
turnover down albeit marginally on last year.
Gross profit increased 13.8% compared to the same period last year; the second
half performance again comfortably ahead of that in the first half. Operating
costs have been carefully controlled, although investment has been made in both
headcount and locations to support the growth in demand. Accordingly, costs
increased by 8.6% year-on-year. However, the segment was able to report an
operating profit of �5.6 million, more than double the profit for 2006 of �2.7
million. Importantly, the conversion rate has also nearly doubled, increasing
from 5.5% in 2006 to 9.9% in 2007.
As mentioned above, each of our temporary recruitment businesses in this segment
has shown strong progress over the corresponding period last year.
Encouragingly, this is particularly the case in the larger businesses operating
in the segment, notably the Blue Arrow High Street Network, Blue Arrow Catering
and Blue Arrow Managed Services. We continue to believe that the changes made,
focused on sales generation and increased productivity, will enable us to
continue to capture market share as we enter 2008. As productivity levels in
most businesses have returned to industry norms, we will seek to make further
discrete investments in staff and offices to further growth, as and when the
business case is made to justify the expenditure. We will also look to further
improve and re-engineer back office processes to increase our conversion rates.
Whilst the Board is pleased at the progress made in the larger businesses within
this segment, performance in our permanent placement businesses has been lower
than expectation. Permanent fees, as a percentage of gross profit, have reduced
to 17.3% (2006: 18.8%). As a result, the gross profit percentage has reduced 50
basis points to 18.6% (2006: 19.1%). In Austin Benn, the business has been
trimmed down to focus on four market sectors within its sales and marketing
specialty. Blend, our permanent catering business which was launched at the
start of 2007, has been well received in the market place and from a standing
start has delivered over �400,000 of permanent placements.
Overall the Board believes that the commercial staffing segment is well placed
to continue progress and growth in 2008.
Healthcare staffing - UK
Throughout 2007, the healthcare staffing segment traded under the key brands of
Medacs, which operates in five sectors (doctors, nursing, allied health
professionals, permanent placements and managed healthcare) and Blue Arrow Care
which operates in the social care and domiciliary care sectors. It also
operated under the PRN brand (locum doctors) and, following their acquisitions
during the year, the Translocation brand (medical permanent placement) and the
Chrysalis Community Care brand (domiciliary care). Following the appointment of
Nigel Marsh as Chief Executive - Healthcare Staffing, these businesses are to be
rationalised into three key divisions, recruitment services and managed
healthcare, under the Medacs brand, and domiciliary care under the Chrysalis
brand.
Year ended 31 December 2007 2006 Growth
�m �m %
Turnover 101.8 83.9 21.3
Gross profit 16.6 15.3 8.6
Administrative expenses 13.0 12.9 1.2
EBIT 3.6 2.4 47.7
Gross profit percentage % 16.3% 18.2%
EBITDA return on sale % 3.8% 3.3%
Conversion ratio (EBIT as a % of 21.6% 15.9%
Gross Profit)
Permanent fees % GP 7.8% 6.7%
Overall revenues for the segment increased 21.3% to �101.8 million (December
2006: �83.9 million). The rate of growth in the second half of the year was
again significantly ahead of that seen in the first half of 2007. Following a
number of periods of reducing demand and consolidation within the market place,
2007 saw an increase in demand for locum doctors. The budgetary pressures
within the NHS, which had driven down volumes in 2006, appear to have eased and
the number of locum doctor hours offered to the market has increased
significantly compared to last year.
Against this background, Medacs has concentrated on increasing the availability
of doctors to maximise the opportunity available in the market place. A
characteristic of the market is the formation, by NHS Trusts, of procurement
hubs and buying consortia. These are designed to maximise the volume discounts
available within the existing National Framework Agreement. Medacs has more
Tier 1 and Master Vendor arrangements than any other supplier in the market
place and is a dominant supplier into these procurement hubs. This is a key
driver in the reduction in the gross profit percentage to 16.3% (2006: 18.2%).
Despite the substantial increase in revenues, operating costs were well
controlled and only increased by 1.2% compared to the same period in 2006. As a
result, substantially all of the gross margin increase has been converted to
operating profit which increased 47.7% to �3.6 million (2006: �2.4 million).
The NHS Purchasing and Supply Agency is well advanced in the tender process for
a new National Framework Agreement that should become effective from July 2008.
Medacs expects to continue to operate as a framework agency.
As part of the strategy to diversify our medical staffing offering, we are
pleased to report that the nursing business has seen significant growth in the
year and contributed profits in excess of �0.5 million to the Group. Further,
in our Managed Healthcare business the three contracts acquired from a
competitor which ceased trading at the end of 2006 together with contract wins
have added scale to the business reflected in a step change in profitability. In
May 2007, Medacs acquired Translocation UK Limited which complements Medacs's
existing permanent placement business by adding new candidate resourcing
experience from India and North America to its traditional East and Southern
European markets as well as adding a new client base within the NHS.
The Blue Arrow Care business has again seen revenues and margins in its
traditional Social Care staffing business decline as the impact of vendor
neutral procurement providers fragment the traditional preferred supplier
arrangements where Blue Arrow Care was traditionally strong. However, the
domiciliary care sector continues to build as the trend towards more community
supported living and an ageing population continues. In order to provide more
scale in the sector, a Bristol based domiciliary care business, Chrysalis
Community Care Limited, was acquired in June.
The prospects for the Healthcare business remain positive. Volumes in the NHS
are expected to continue at the current higher levels, and Managed Healthcare
and the domiciliary care businesses are expected to deliver continued growth
into 2008.
Vendor procurement - UK
Year ended 31 December 2007 2006* Growth
�m �m %
Net fee income 5.6 4.4 25.4
Administrative expenses 4.6 3.3 36.0
EBIT 1.0 1.1 (7.2)
EBITDA return on sale % 18.8% 25.5%
Conversion ratio (EBIT as a % of 18.2% 24.6%
Gross Profit)
Comensura is a technology driven business that specialises in the procurement
and management of a client's vendor community. It does not provide staffing
services itself but procures and manages staffing services on behalf of its end
customers.
As reported in the interim results, the business suffered a setback in the first
half of 2007 following the discovery that �934,000 of rebates and provisions
should have been accounted for in prior years and accordingly, following an
independent review by forensic accountants, the prior year figures were
restated. Since that date a new management team has been appointed centred
around Mike Trevor, who was appointed as Chief Executive in September 2007.
Comensura has enjoyed another year of good growth. Net fee income (being the fee
received from clients for the procurement and management of their contingent
labour suppliers, net of any rebates) has increased 25.4% in the year. This
reflects new contract wins throughout the year in both the private and
particularly the local government sector. To maintain Comensura's competitive
edge, investment is being made in a new technology platform and infrastructure
to provide enhanced functionality and resilience. This new platform is in the
advanced stages of development and test and is expected to be rolled out to
customers in the first half of 2008.
Operating costs increased by 36.0%, but were artificially inflated by �0.3
million of one-off costs incurred in respect of the rebate issue. Adjusting for
this, costs increased by 25.3% reflecting investment in the start up of
Comensura Australia and in personnel and infrastructure to grow its UK business
in areas additional to the local government sector where competition is keen and
opportunities for growth are becoming more limited. Underlying operating profit
for the year is therefore �1.4 million, an increase of 25.5% over 2006.
The Board still believes the growth prospects for Comensura to be good.
Commercial staffing - US
Our US business comprises a mix of both traditional staffing and, increasingly,
more specialist staffing businesses. The US trades under the brand names
CORESTAFF (traditional commercial staffing), Leafstone (finance and accounting
placement specialist), InfoCurrent (information management, librarian and
records management staffing) and CareerTrust (direct hire). In July, the US
Comensura business was rebranded as The Guidant Group to differentiate the
offering in the US from that provided by Comensura in the UK. The Guidant Group
delivers an on-site vendor neutral staffing procurement solution centred much
more on process than on technology.
Year ended 31 December 2007 2006 Growth in local currency
�m �m %
Turnover 171.9 184.7 1.2
Gross profit 34.0 35.2 5.1
Administrative expenses (^) 29.5 31.4 2.1
EBIT (^) 4.5 3.8 30.0
Gross profit percentage 19.8% 18.9%
EBITDA return on sale (^) 3.0% 2.5%
Conversion ratio (EBIT as a % of 13.2% 10.9%
Gross Profit)
Permanent fees % GP 4.5% 5.1%
(^) excluding exceptional items
Against an uncertain US economic backdrop, trading in the US has continued to
improve. Although 2007 only saw a 1.2% increase in turnover, gross profit
increased 5.1%, measured in local currency, compared to 2006. Once again, we
believe these growth rates to be better than the market. Our strategy of
targeting activity towards middle market customers in the clerical, technical
and professional sectors where margins are more favourable, resulted in a
further 90 basis point increase in gross margin percentage to 19.8% this despite
permanent placements reducing to 4.5% (2006: 5.1%) of gross profit. Operating
costs have increased slightly, by 2.1%, to �29.5 million as we invested
cautiously to maximise the opportunities which we saw in the market place.
Overall the US business achieved an operating profit of �4.5(^) million (2006:
�3.8 million) in the period an increase of 30%, as measured in local currency.
In common with a number of our competitors in the US market, we have experienced
a slow down in demand in our traditional staffing markets although we continue
to see good growth in our speciality IT and in our Guidant businesses. We
continue to monitor costs very closely and have identified actions that could be
taken should the market place weaken in 2008.
Board
During the year, there have been a number of Board changes. After almost three
years as Executive Chairman, Tony Martin stepped down at the end of September.
The Board are grateful for the strategic direction and operational focus that
Tony brought to the Group. We wish to place on record our thanks to him, and
wish him well for the future.
Since that time, I have been acting as Non-executive Chairman of the Group. The
search for a Non-executive Chairman was deferred pending discussions with
Carlisle. Should the possible merger not complete, then it remains the Board's
intention to appoint a Non-executive Chairman.
The Board also announced the appointment of Desmond Doyle, formerly Chief
Operating Officer and Group Finance Director, as Group Chief Executive Officer
in July 2007 following the announcement of Tony's intention to step down.
Desmond handed over his responsibilities as Group Finance Director to Andrew
Burchall who was appointed to the Board in September. Andrew was previously the
Finance Director of CSG's Healthcare businesses, Medacs Healthcare and Blue
Arrow Care. Additionally, John Rowley, formerly UK Chief Executive, moved to the
newly created position of Group Development Director on 1 October 2007 with a
remit to drive forward the Group's acquisition programme.
Current Group trading and prospects
Whilst the Board is mindful of recent commentary on the general economic
environment in both the USA and the UK it is pleased to report that trading in
the first eight weeks of the year has been in line with the Board's
expectations.
Trading in the UK commercial staffing segment is in line with the Board's
expectations and comfortably ahead of the comparable period last year. Trading
in the US commercial staffing segment is both in line with the Board's
expectations and comparable to the same period in 2007.
Trading in the UK healthcare staffing segment is in line with the Board's
expectations and significantly ahead of the comparable period for 2007. Trading
in our UK vendor procurement business is in line with the Board's expectations
and significantly ahead of the comparable period in 2007. Given their public
sector bias, the Board is confident about the prospects for UK Healthcare
Staffing and UK Procurement irrespective of general economic conditions.
Overall, 2008 has started positively, and the Board looks forward to another
year of progress.
Noel Harwerth
Acting Chairman
4th March 2008
Consolidated income statement
For the year ended 31 December 2007
Years ending 31 December
2007 2007 2007 2006
Before Exceptional After Restated
exceptional items exceptional
items items (note 2)
(Note 5)
Notes � 000 � 000 � 000 � 000
Continuing operations
Revenue 4 585,379 585,379 533,873
Cost of sales (472,450) (472,450) (429,085)
_________ _________ _________
Gross profit 112,929 112,929 104,788
Administrative expenses (101,718) (19,126) (120,844) (97,695)
_________ _________ _________ _________
Operating profit/(loss) 4 11,211 (19,126) (7,915) 7,093
Finance income 395 - 395 322
Finance expense (5,086) - (5,086) (5,064)
Finance expense on early redemption of 5 - (933) (933) (650)
loan notes
_________ _________ _________ _________
Profit/(loss) before taxation 6,520 (20,059) (13,539) 1,701
Taxation 6 1,096 - 1,096 (8)
_________ _________ _________ _________
Profit/(loss) for the year (attributable to 7,616 (20,059) (12,443) 1,693
equity holders of the parent Company)
_________ _________ _________ _________
Earnings/(loss) per share 7 0.70p (1.86)p (1.16)p 0.16 p
(basic and diluted)
Consolidated balance sheet
At 31 December 2007
2007 2006
Restated
� 000 � 000
Non-current assets
Property, plant and equipment 5,403 4,951
Goodwill 25,948 44,331
Other intangible assets 1,742 1,656
Prepaid leasehold costs 295 339
Investments 2,220 1,760
Other financial assets 2,599 3,222
_________ _________
4,819 4,982
Deferred tax asset 955 -
_________ _________
39,162 56,259
_________ _________
Current assets
Trade and other receivables 121,395 96,579
Cash at hand and in bank 6,178 3,518
_________ _________
127,573 100,097
_________ _________
Total assets 166,735 156,356
_________ _________
Current liabilities
Trade and other payables (91,150) (70,693)
Taxation liabilities (80) (383)
Bank overdrafts and other short-term borrowings (29,001) (21,668)
Derivative financial instruments (140) -
Provisions (2,005) (2,119)
_________ _________
(122,376) (94,863)
_________ _________
Net current assets 5,197 5,234
_________ _________
Non-current liabilities
Long-term borrowings (31,852) (34,586)
Provisions (1,183) (2,242)
_________ _________
(33,035) (36,828)
_________ _________
Total liabilities (155,411) (131,691)
_________ _________
Net assets 11,324 24,665
_________ _________
Consolidated balance sheet (continued)
At 31 December 2007
2007 2006
Restated
� 000 � 000
Equity
Issued share capital 10,772 10,757
Share premium account 280,816 280,753
Own shares (746) (746)
_________ _________
290,842 290,764
Other reserves 18,292 19,298
Retained deficit (297,810) (285,397)
_________ _________
Total equity attributable to equity holders of the 11,324 24,665
parent Company
_________ _________
Consolidated cash flow statement
For the year ended 31 December 2007
2007 2006
Restated
� 000 � 000
Cash flows from operating activities
(Loss)/profit before taxation (13,539) 1,701
Adjustments for non-cash items:
Goodwill impairment 19,126 -
Net interest charge 4,691 4,742
Finance expense on early redemption of loan notes 933 650
Depreciation 1,434 1,539
Amortisation 1,005 1,099
(Profit)/loss on disposal of property, plant and (1) 6
equipment
Share based payment charge/(credit) 30 (929)
Gain on disposal of investments (137) (55)
_________ _________
13,542 8,753
Increase in trade and other receivables (25,094) (16,846)
Increase in trade and other payables 20,789 9,868
Decrease in provisions (1,145) (2,259)
_________ _________
Cash generated/(utilised) by operations 8,082 (484)
Taxation paid (194) (3)
_________ _________
Net cash generated/(utilised) by operating activities 7,898 (487)
_________ _________
Cash flows from investing activities
Acquisition of subsidiaries (net of cash acquired) - note 3 (1,751) -
Purchase of property, plant and equipment (PPE) (1,863) (1,086)
Purchase of intangible assets (1,041) (673)
Purchase of Investments (483) (318)
Proceeds from sale of PPE 4 7
Proceeds from sale of Investments 238 79
Decrease in other financial assets 548 1,422
Finance income received 273 234
_________ _________
Net cash utilised on investing activities (4,075) (335)
_________ _________
Consolidated cash flow statement (continued)
For the year ended 31 December 2007
2007 2006
Restated
� 000 � 000
Cash flows from financing activities
Proceeds from issue of share capital 78 23
Loan note repayment (15,000) (10,000)
Increase in other long-term borrowings 12,635 -
Increase in short-term borrowings 4,760 16,709
Capital element of finance lease payments (73) (139)
Finance expense paid (4,698) (4,775)
Finance expense paid on early redemption of loan (750) (500)
notes
_________ _________
Net cash (outflow)/inflow from financing activities (3,048) 1,318
_________ _________
Net increase in cash and cash equivalents 775 496
Opening cash and cash equivalents 3,039 3,271
Foreign exchange losses on cash and cash equivalents 21 (728)
_________ _________
Closing cash and cash equivalents 3,835 3,039
_________ _________
Consolidated statement of changes in equity
For the year ended 31 December 2007
Total share Other Retained Total equity
capital reserves deficit
� 000 � 000 � 000 � 000
1 January 2006 290,741 27,103 (285,879) 31,965
Impact of prior year adjustment - - (282) (282)
______ ______ ______ ______
Restated balance 290,741 27,103 (286,161) 31,683
______ ______ ______ ______
Currency translation differences - (7,805) - (7,805)
______ ______ ______ ______
Total income and expense recognised in equity - (7,805) - (7,805)
Profit for the year (originally reported) - - 2,345 2,345
Prior year adjustment - - (652) (652)
______ ______ ______ ______
Profit for the year (as restated) - - 1,693 1,693
______ ______ ______ ______
Total income and expense for the year - (7,805) 1,693 (6,112)
Exercise of options 23 - - 23
Share based payments - - (929) (929)
______ ______ ______ ______
23 (7,805) 764 (7,018)
______ ______ ______ ______
31 December 2006 290,764 19,298 (285,397) 24,665
______ ______ ______ ______
Currency translation differences - (1,006) - (1,006)
______ ______ ______ ______
Total income and expense recognised in equity - (1,006) - (1,006)
Loss for the year - - (12,443) (12,443)
______ ______ ______ ______
Total income and expense for the year - (1,006) (12,443) (13,449)
Exercise of options 78 - - 78
Share based payments - - 30 30
______ ______ ______ ______
78 (1,006) (12,413) (13,341)
______ ______ ______ ______
31 December 2007 290,842 18,292 (297,810) 11,324
______ ______ ______ ______
The prior year adjustments relate to the correction of accounting errors (note
2)
Notes to the consolidated financial statements
For the year ended 31 December 2007
1 Basis of preparation
The preliminary results for the year ended 31 December 2007 have been prepared
in accordance with International Financial Reporting Standards (IFRS) as adopted
by the European Union and are consistent with the accounting policies of the
previous year except as follows:
The Group has adopted the following new and amended IFRS and IFRIC
interpretations during the year. Adoption of these revised standards and
interpretations did not have any effect on the financial performance or position
of the Group. They did however give rise to additional disclosures, including in
some cases, revisions to accounting policies.
* IFRS 7 - Financial Instruments: Disclosures
* IAS 1 - Amendment - Presentation of Financial Statements
* IFRIC 8 - Scope of IFRS 2
* IFRIC 9 - Reassessment of Embedded Derivatives
* IFRIC 10 - Interim Financial Reporting and Impairment
The financial information in the preliminary statement of results does not
constitute statutory accounts within the meaning of Section 240 of the Companies
Act 1985 (the "Act"). The financial information for the year ended 31 December
2007 has been extracted from the statutory accounts on which an unqualified
audit opinion has been issued. Statutory accounts for the year ended 31 December
2007 will be delivered to the Registrar of Companies following the Company's
Annual General Meeting.
The financial statements, and this preliminary statement, of The Corporate
Services Group PLC (the Group) for the year ended 31 December 2007 were
authorised for issue by the Board of Directors on 4 March 2008 and the balance
sheet was signed on behalf of the Board by Andrew Burchall.
The statutory accounts have been delivered to the Registrar of Companies in
respect of the year ended 31 December 2006 and the Auditors of the Company made
a report thereon under Section 235 of the Act. That report was an unqualified
report and did not contain a statement under Section 237(2) or (3) of the Act.
2 Profit restatement
As reported at the half year, following an internal review of Comensura's UK
contracts, it became apparent that, in a small number of material contracts,
rebates due to clients were not being accounted for correctly. A charge of
�934,000 should have been made in 2006 or in prior years. An adjustment, as set
out below, has been made to restate 2006 and prior years.
Dec 2006 Dec 2005
Reduction in revenue 624 104
Increase administrative expenses 28 178
______ ______
Decrease in profit or increase in loss 652 282
______ ______
Decrease in Trade receivables 652 282
______ ______
Decrease in Equity 652 282
______ ______
There is no tax effect as a result of this prior year adjustment.
The effect on basic and diluted earnings per share as a result of these
restatements is to reduce the previously disclosed amounts by 0.06p in 2006 and
0.03p in 2005.
3 Business combinations
Acquisitions in 2007
Translocation UK Limited
On 9 May 2007 the Group acquired 100% of the share capital of Translocation UK
Limited, a private company based in the UK, specialising in the supply of
permanent employees from overseas into the UK healthcare sector.
Chrysalis Community Care Limited
On 7 June 2007 the Group acquired 100% of the share capital of Chrysalis
Community Care Limited, a private company based in the UK, specialising in the
provision of homecare services in the Bristol area.
The fair values of the identifiable assets and liabilities of these two
businesses at their respective dates of acquisition and the corresponding
carrying amounts immediately prior to the acquisition were:
Fair value Book value
recognised on
acquisition
� 000 � 000
Property plant and equipment 17 30
Cash and cash equivalents 84 84
Trade receivables 328 328
Stock - 3
Trade payables (151) (137)
Corporation taxes (35) (30)
_________ _________
Net Assets 243 278
_________
Goodwill arising on acquisition 1,592
_________
Total consideration 1,835
_________
The total cost of the business combinations was �1,835,000 and comprised costs
and cash directly attributable to the combinations:
� 000
Cash 1,770
Costs associated with acquisitions 65
_________
1,835
_________
Cash outflow on acquisitions:
� 000
Net cash acquired with subsidiaries 84
Cash paid (1,835)
_________
(1,751)
_________
From their dates of acquisition Translocation UK Limited and Chrysalis Community
Care Limited have contributed �202,000 to the profit after tax of the Group. If
the combination had taken place at the beginning of the year, the loss after tax
of the Group would have been �12,420,000 and revenue from continuing operations
would have been �586,126,000.
The goodwill of �1,592,000 comprises the fair value of expected synergies which
are not separately recognised. Due to the short-term nature of most customer
relationships they do not meet the criteria for recognition as an intangible
asset under IAS 38 Intangible Assets.
4 Segment information
The Group's primary reporting format is geographical and its secondary format is
by business type. The two principal geographical regions are managed separately
with separate head-office functions. The economic climates of these two
geographies exist independently and are subject to different legal and fiscal
rules.
Although the Group does have operations in Australia and New Zealand, the
results are included under the UK in the geographical analysis as they are not
of a material size.
The geographical segments are based upon the location of the business units
which is also the location of their customers. In the UK we identify three
business segments; they are managed independently with different economic and
social challenges impacting their results.
Revenue disclosed in the income statement relates solely to the rendering of
services. There are no significant inter-segment sales.
Unallocated assets and liabilities represent cash and borrowings, which are
considered to be funding for the Group as a whole, plus deferred tax and
corporation tax balances.
Geographic segments
Continuing operations
Year ending 31 December 2007
United United States Operations Corporate Group
Kingdom
Total costs -UK Total
� 000 � 000 � 000 � 000 � 000
Segment revenue 413,526 171,853 585,379 - 585,379
_______ _______ _______ _______ _______
Result
Segment result before depreciation 11,985 5,144 17,129 (3,479) 13,650
amortisation and exceptional item
Depreciation (1,136) (298) (1,434) - (1,434)
Amortisation (654) (351) (1,005) - (1,005)
_______ _______ _______ _______ _______
Segment result / operating profit/ 10,195 4,495 14,690 (3,479) 11,211
(loss) before exceptional item
Exceptional item - (19,126) (19,126) - (19,126)
_______ _______ _______ _______ _______
Segment result / 10,195 (14,631) (4,436) (3,479) (7,915)
operating profit/(loss)
_______ _______ _______ _______
Finance costs - net (4,691)
Finance expense on early redemption of loan notes (933)
_______
Loss before taxation (13,539)
Taxation 1,096
_______
Loss for the period (12,443)
_______
Assets and liabilities
Segment assets 102,508 55,680 158,188 1,414 159,602
_______ _______ _______ _______
Unallocated assets 7,133
_______
Total assets 166,735
_______
Segment liabilities (65,664) (27,550) (93,214) (1,262) (94,476)
_______ _______ _______ _______
Unallocated liabilities (60,935)
_______
Total liabilities (155,411)
_______
Year ending 31 December 2006 - restated
United United States Operations Corporate Group
Kingdom
Total costs -UK Total
� 000 � 000 � 000 � 000 � 000
Segment revenue 349,150 184,723 533,873 - 533,873
_______ _______ _______ _______ _______
Result
Segment result before depreciation and 8,171 4,474 12,645 (2,914) 9,731
amortisation
Depreciation (1,202) (337) (1,539) - (1,539)
Amortisation (723) (376) (1,099) - (1,099)
_______ _______ _______ _______ _______
Segment result / 6,246 3,761 10,007 (2,914) 7,093
operating profit/(loss)
_______ _______ _______ _______
Finance costs - net (4,742)
Finance expense on early redemption of loan notes (650)
_______
Profit before taxation 1,701
Taxation (8)
_______
Profit for the period 1,693
_______
Assets and liabilities
Segment assets 72,928 78,472 151,400 1,438 152,838
_______ _______ _______ _______
Unallocated assets 3,518
_______
Total assets 156,356
_______
Segment liabilities (45,437) (27,292) (72,729) (2,324) (75,053)
_______ _______ _______ _______
Unallocated liabilities (56,638)
_______
Total liabilities (131,691)
_______
Business segments
Continuing operations
Year ending 31 December 2007
Commercial Healthcare Vendor Operations Corporate Group
staffing staffing procurement - UK
Total costs Total
- UK
� 000 � 000 � 000 � 000 � 000 � 000
Segment revenue 478,028 101,780 5,571 585,379 - 585,379
_______ _______ _______ _______ _______ _______
Result
Segment result before 12,183 3,901 1,045 17,129 (3,479) 13,650
depreciation,
amortisation and
exceptional item
Depreciation (1,173) (240) (21) (1,434) - (1,434)
Amortisation (917) (79) (9) (1,005) - (1,005)
_______ _______ _______ _______ _______ _______
Segment result / 10,093 3,582 1,015 14,690 (3,479) 11,211
operating profit/(loss)
before exceptional item
Exceptional item (19,126) - - (19,126) - (19,126)
_______ _______ _______ _______ _______ _______
Segment result / (9,033) 3,582 1,015 (4,436) (3,479) (7,915)
operating profit/(loss)
_______ _______ _______ _______ _______ _______
Assets
Segment assets 119,745 17,832 20,611 158,188 1,414 159,602
_______ _______ _______ _______ _______
Unallocated assets 7,133
_______
Total assets 166,735
_______
Year ending 31 December 2006 - restated
Commercial Healthcare Vendor Operations Corporate Group
staffing staffing procurement - UK
Total costs Total
- UK
� 000 � 000 � 000 � 000 � 000 � 000
Revenue 445,521 83,908 4,444 533,873 - 533,873
_______ _______ _______ _______ _______ _______
Result
Segment result before 8,765 2,749 1,131 12,645 (2,914) 9,731
depreciation and
amortisation
Depreciation (1,379) (142) (18) (1,539) - (1,539)
Amortisation (898) (182) (19) (1,099) - (1,099)
_______ _______ _______ _______ _______ _______
Segment result / 6,488 2,425 1,094 10,007 (2,914) 7,093
operating profit/(loss)
_______ _______ _______ _______ _______ _______
Assets
Segment assets 127,203 12,081 12,116 151,400 1,438 152,838
_______ _______ _______ _______ _______
Unallocated assets 3,518
_______
Total assets 156,356
_______
5 Exceptional items
* Impairment of goodwill
An impairment charge of �19,126,000 has been recognised in the consolidated
income statement for the year following a review of the US business, its
medium-term economic outlook and increases in the cost of capital.
* Finance expense on early redemption of loan note
On 30 May 2007 and 3 July 2006, the Company redeemed �15 million and �10
million, respectively, of its �45 million 10% Guaranteed Loan Notes due 2011.
The redemption in 2007 was funded by three-year bank term loans and increased
borrowings from the Group's existing senior lenders. The redemption in 2006 was
funded by an increase in revolving credit facilities. The one-off costs
attributable to these early redemptions, �933,000 (2006: �650,000), have been
shown on a separate line of the consolidated income statement.
6 Taxation
a) Tax (credited)/charged in the income statement
2007 2006
� 000 � 000
Current income tax
UK Corporation tax on profits of the period 12 -
Adjustments in respect of previous periods (170) -
________ ________
(158) -
Foreign tax in the period 17 8
Adjustment to Foreign tax in respect of previous periods - -
________ ________
Total current income tax (141) 8
Deferred tax credit - recognition of assets not previously recognised (955) -
________ ________
Total tax (credit)/charge in the income statement (1,096) 8
________ ________
No current or deferred tax has been charged or credited in the consolidated
statement of changes in equity in either period.
b) Reconciliation of the total tax charge
The average effective tax rate of 8.1% (2006: 0.5% as restated) can be
reconciled to the standard UK corporation tax rate of 30.0% as follows:
2007 2006
% restated
%
Tax credit at UK standard rate 30.0 30.0
Differences in tax rates in other countries 11.6 (9.8)
Foreign taxes in the period (0.2) 0.5
Expenses not deductible for tax purposes (2.1) (4.8)
Recognition of deferred tax asset on losses in respect of previous periods 7.1 -
Movement in other deferred tax asset not recognised (39.5) (15.4)
Adjustments in respect of previous periods 1.2 -
_____ _____
Effective total tax rate 8.1 0.5
_____ _____
c) Deductible temporary differences
The Group has deductible temporary differences relating to provisions and
deferred capital allowances of �55,116,000 (2006: �41,015,000). Deferred tax
assets have not been recognised in respect of these temporary differences as
they have arisen in subsidiaries that have been loss-making for tax purposes for
some time. They have no expiry date.
d) Tax losses
The Group has tax losses that arose in the UK of �56,382,000 (2006: �61,415,000
as restated) and tax losses that arose in the USA of �95,296,000 (2006:
�96,603,000) that are available for offset against future taxable profits of the
companies in which the losses arose. There is no expiry date on the UK losses
but the US losses expire between 2018 and 2027. Deferred tax assets of �955,000
(2006: �nil) have been recognised in respect of the former as they are in
companies that are now trading profitably. Deferred tax assets have not been
recognised in respect of the remaining losses as they may not be used to offset
taxable profits elsewhere in the Group and they have arisen in subsidiaries that
have been loss-making for tax purposes for some time. There are no significant
temporary differences associated with the Group's investment in subsidiaries.
7 Earnings/(loss) per share
Basic earnings per share amounts are calculated by dividing the profit for the
year attributable to the equity holders of the Company by the weighted average
number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated on the same basis but after
adjusting the denominator for the effects of dilutive options. The only
potentially dilutive shares arise from the share options issued by the Group
under its share-based compensation plans.
The weighted average number of shares in 2007 is 1,075,728,442 (2006:
1,074,625,900) excluding the shares owned by the Corporate Services Group
Employee Share Trust. The weighted average shares for the diluted loss per share
is the same as for the basic loss per share as the effect of including the share
options would be anti-dilutive by increasing the loss per share.
There are 3,593,930 dilutive share options as at 31 December 2007 (2006:
7,254,270), therefore the fully diluted weighted average number of shares in
2007 is 1,079,322,372 (2006: 1,081,880,170) excluding the shares owned by the
Corporate Services Group Employee Share Trust. This fully diluted number of
shares leads to no effective change to the earnings per share figures. A
weighted average total of 22,859,560 (2006: 67,036,046) options have been
excluded from the diluted earnings per share calculation either because their
exercise price was in excess of the average market price, or the conditions on
the options were such that they did not qualify to be brought into the
calculation.
The calculations of (loss)/earnings per share are based upon the following
consolidated income statement data:
(Loss)/profit for the year (Loss)/earnings per share
Years ending 31 December Years ending 31 December
2007 2006 2007 2006
Restated Restated
� 000 � 000 Pence Pence
Basic and diluted
(Loss)/profit for the year (12,443) 1,693 (1.16) 0.16
Other expense - impairment 19,126 - 1.78 -
Other expense - finance expense on early 933 650 0.08 0.06
redemption of loan notes
_________ _________ _________ _________
Adjusted profit for the year 7,616 2,343 0.70 0.22
_________ _________ _________ _________
8 Contingent liabilities
American depository receipts ("ADRs")
In early 2003, the Company was made aware of the existence of approximately 600
holders of ADRs issued several years ago in connection with an unsponsored ADR
programme for the Group's shares. While the Company was not involved in the
establishment of this programme, US federal securities laws require that, if the
number of US shareholders of a company that is a foreign private issuer exceeds
300, such company must register with the US Securities and Exchange Commission
("SEC") and become subject to the periodic reporting requirements of the
Exchange Act or obtain an exemption from registration and periodic filing within
120 days of the end of the financial year in which the number of US shareholders
exceeded 300. The Company is endeavouring to rely on the exemption from
registration and filing although it is not clear when the Company acquired more
than 300 US shareholders because the ADR programme is unsponsored. The Company
applied for the exemption in August 2003. It is possible that the SEC may
determine that the exemption is not available to the Company and require it to
become a US reporting company. It is also possible that the SEC might impose a
fine on the Company although the violation of the Exchange Act was inadvertent.
Although the Board do not believe that a fine would be material, a requirement
to register under the Exchange Act would involve cost and be time consuming.
The Board intends to continue to comply with the requirements of the exemption.
9 Net Debt
1 January 2007 Cash flow Foreign Other 31December
exchange non-cash 2007
changes
�000 �000 �000 �000 �000
Cash at bank and short-term 3,518 2,639 21 - 6,178
deposits
Bank overdrafts (479) (1,864) - - (2,343)
__________ __________ _________ __________ __________
3,039 775 21 - 3,835
__________ __________ _________ __________ __________
Guaranteed secured loan note (34,529) 15,000 - (264) (19,793)
Bank loans - (12,635) (7) (128) (12,770)
Finance leases (135) 73 - (14) (76)
Revolving credit (21,111) (4,760) - - (25,871)
__________ __________ _________ __________ __________
(55,775) (2,322) (7) (406) (58,510)
__________ __________ _________ _________ __________
(52,736) (1,547) 14 (406) (54,675)
__________ __________ _________ __________ __________
Non-cash movements
Non-cash movements include �392,000 (2006: �275,000) relating to the
amortisation of issue costs relating to the loan notes and bank term loans
(including accelerated amortisation of the �15 million (2006: �10 million) loan
note redemption) and �14,000 (2006: �54,000) relating to the inception of new
finance leases on the acquisition of fixtures and fittings during the year.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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