STAFFLINE GROUP PLC

Earnings Release • Feb 25, 2013

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RNS Number : 5382Y

Staffline Group PLC

25 February 2013

For Immediate Release	25 February 2013

STAFFLINE GROUP PLC

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2012

Staffline, the national recruitment and outsourcing organisation providing people and operational expertise to industry, today announces its preliminary results for the year ended 31 December 2012.

Financial highlights:

·     Revenues up 27% to £367.0 million (2011: £288.3 million)

·     Adjusted group operating profit up 4% to £10.7 million (2011: £10.3 million)

·     Adjusted profit before tax up 2% to £10.3 million (2011: £10.1m)

·     Reported profit before tax up 13% to £8.5 million (2011: £7.5 million)

·     Adjusted earnings per share up 2% to 35.9p (2011: 35.1p)

·     Basic earnings per share up 15% to 29.7p (2011: 25.9p)

·     Final dividend of 5.0p; total dividend of 8.1p (2011: 7.1p); increase of 14%

·     Net debt at year end of £4.6m (2011: £4.9m)

All adjusted figures exclude amortisation of intangible assets

Operational highlights:

·     Continued growth of the OnSite platform

o  Increased by 16 sites during the reporting period to 179 (2011: 163)

o  Represents 85% of Group sales (2011: 85%)

·     Four acquisitions completed and integrated successfully during 2012, including Select Appointments Ltd, the specialist white collar recruitment business acquired in October 2012

·     Target to expand Select to over 100 locations from current 30

·     Staffline Express branch network increased by 4 to 22 locations

·     Welfare to Work business, EOS, continues to perform ahead of the market

o  EOS now ranked as a top three performer nationally

o  EOS positioned to generate significant profits during 2013

·     Strong start to trading in 2013 underpinned by an excellent new business pipeline from new and existing customers

Commenting on the results and prospects for 2012, Andy Hogarth, Chief Executive, said:

"2012 has been another year of progress for Staffline despite being a difficult year for the recruitment industry.  Not only have we continued to see strong organic growth in our core Onsite business we have delivered very encouraging operating results from our EOS division from which we expect to see increased profits in 2013.

Acquisitions still remain a key growth strategy for the business and the move into white collar recruitment with the acquisition of Select Appointments is particularly exciting, allowing us to replicate the success of our blue collar recruitment in this sector.

We have started 2013 with continued confidence and believe our business remains very well placed to continue to drive profit growth and further enhance shareholder value.  The Board is therefore pleased to propose a 14% increase to the full year dividend of 8.1p, a sign of confidence in both our business and the markets in which we operate."

For further information, please contact:
Staffline Group plc
Andy Hogarth, Chief Executive	07931 175775
Tim Jackson, Finance Director	07720 458626
www.staffline.co.uk
Liberum Capital Limited
NOMAD & Broker
Chris Bowman / Richard Bootle	020 3100 2222
Buchanan
Jeremy Garcia/ Gabriella Clinkard	020 7466 5000

www.buchanan.uk.com

About Staffline

Staffline Group plc is a recruitment organisation specializing in food processing, manufacturing, e-retail, driving and logistics.  Staffline provides and manages industrial workforces and uses training and business improvement techniques to ensure increased levels of efficiency to give their clients a significant commercial advantage. Operating from over 200 locations in the UK, Staffline supplies up to 30,000 blue collar workers each day.  Brands include Staffline Express and Select Appointments, the High Street branch operations, OnSite based on clients' premises, Elpis Training a national training and consultancy organisation, OSP a specialist volume recruitment call centre and EOS, a Welfare to Work provider.

A presentation for analysts will be held at 9.30am on February 25 2013 at the offices of Buchanan, 107 Cheapside, London, EC2V 6DN

Chairman's Statement

We are delighted to report that the Group grew revenue and profits during 2012, driven by a combination of organic growth and acquisitions.  This good performance was achieved against a backdrop of a challenging macroeconomic outlook and an extremely competitive recruitment market.  Whilst this creates many challenges at an operational level, we have continued to grow our Onsite platform, increasing sites by a further 16 this year to 179.  Our move in to the Welfare to Work arena during 2011, with the acquisition of EOS, is showing early signs of success and we expect profitability from this division to grow significantly during 2013.

We also completed the acquisition of Select Appointments Limited, a long established specialist staffing services business providing office and administration staff across the UK.  This transaction will see Staffline expand its services into the 'White Collar' arena for the first time, in a move which will see the Group seek to replicate the success of our 'Blue Collar' business.

Therefore, I remain confident of the Group's ability to continue to grow.  We are seeing further opportunities for both acquisitions and organic growth due to on-going changes in the industry and the ever greater need of our clients to increase their productivity whilst being provided reliable and efficient staffing solutions.

John Crabtree OBE

Chairman

25 February 2013

Chief Executive's Report

I'm pleased to report the Group has enjoyed another successful year with sales up by 27% and profit after tax up by 15%.  We are particularly pleased with this performance given that we suffered the expected reduction in profitability (due to the level of investment committed to supporting our Department for Works and Pensions ("DWP") contracts) within EOS.  As a result of this upfront investment, we had expected at the start of the year that net profit for the Group would remain flat, so it is particularly pleasing to be able to report an increase in operating profit for 2012. We are confident that profitable growth for the Group will continue during 2013, enabling the Board to propose an increased final dividend of 5.0p, (2011: 4.2p) making the full year dividend 8.1p, (2011: 7.1p).  This represents an increase of 14% to the full year dividend and we intend to continue to grow the dividend broadly in line with earnings.

Operational Review

2012 continued in much the same vein as 2011 with the trading environment remaining difficult.  Despite this, sales in our recruitment business grew by 27% and profitability grew by 18%.  Sales also grew in our Welfare to Work division, by 33% but, as expected, operating profit before amortisation declined during the year by 48%.  This anticipated reduction is due to the structure of the Work Programme contract we operate with the DWP and the upfront investment incurred in 2012. We are confident that profitability will be significantly improved in 2013.  In addition we suffered losses on our two European Social Fund contracts due to a shortfall in expected referrals from Local Authorities.  The effect on the overall Group results is that our profitability has risen by 4% at the adjusted operating profit level, from £10.3m to £10.7m.More significantly after tax profit increased from £5.6m to £6.4m.  Demand for our Onsite offering continues to generate significant market interest with a good pipeline of new business, the overall trend to outsourcing remaining prevalent for many clients. 

The number of OnSites we operate from has continued to increase, from 163 in December 2011 to 179 at December 2012; this includes openings from a mixture of new and existing clients and some from acquisitions.  Our Onsite model continues to be a driving factor in our success and we anticipate further growth across the UK. 

Our branch network operation, Staffline Express, grew by 4 locations during the year and now operates from 22 branches.

Acquisitions during the period included the well-known British recruitment brand, Select Appointments Ltd ('Select'), from the Netherlands company Randstad.  Select has been established in the UK for 30 years and specialises in both temporary and permanent placements in the white collar market.  Select has for the past four years been an exclusively franchise operated business and it is our intention to continue with this model of operation which is capital light and limits the Group's business risk.  We are looking to expand the number of operating branches from 30 at the time of acquisition to over 100 in the next three years, concentrating growth in the major cities and conurbations of the UK.  We welcome an approach from individuals looking to operate their own recruitment business with the backing of a national organisation.

The acquisition of Select represents an exciting strategic step for the Group as we seek to further broaden our operational reach.  Not only is the Select brand instantly recognisable but its established franchise network will provide a stable footing for the Group as we seek to expand our services into the white collar staffing market.

We acquired EOS Works Ltd (EOS), the Welfare to Work service provider, in April 2011 and commenced activities with the Coalition Governments new Work Programme Contract in Solihull, Birmingham and the Black Country in June 2011.  In October that year, EOS was awarded two further contracts by the DWP, due to be worth £53m over three years.  Both contracts are financed by the European Social Fund (ESF), with one operating in our existing Work Programme area in the Midlands and the other based in Yorkshire and Humberside.  The nature of all of these contracts means that there is a significant tie up of working capital during the first 18 months which then gradually unwinds as profitability is achieved. At the 31st December 2012 the total additional working capital committed to Eos was £3.2m.  Despite the significant amounts of negative publicity surrounding the Work Programme we are extremely pleased with our progress so far, with EOS appearing in the top 3 (out of 40) for all the major performance measures recorded by the DWP.  To date we have helped over 8,000 long term unemployed back in to work.  Regarding the ESF contracts, whilst we are again performing well against our competition they have been significantly less busy than initially expected, incurred losses in 2012, and are expected to do little more than break even during 2013 despite a number of financial changes by the DWP.  This is a matter we continue to discuss with them.

Market Overview

Gangmaster Licencing Authority (GLA)

We are convinced that the GLA has done much to improve standards and drive many sub-standard operators out of the regulated sector.  Unfortunately there is considerable evidence that many of these Gangmasters have moved into both the Construction and Hospitality sectors, both of which are unregulated.  In addition we have recently experienced an increase in the number of illegal and unlicensed people operating as labour suppliers, sometimes using indentured labour from Eastern Europe. 

Marshall Evans, who was Operations Director until the 25th February, continues to be a member of the Board of Directors of the GLA as well as being a member of the REC council and the Chairman of the Policy Committee.  I also sit on the board of the Association of Labour Providers.  These roles allow us to understand and influence future industry trends and Government policy.

PAYE and Travel and Subsistence Schemes

We have been encouraged in our long term opposition to the abusive use of travel and subsistence schemes by a more robust response from Government agencies. Whilst during the year we continued to lose a number of clients to competitors operating these schemes we also won business from customers who are realising the potential liabilities they face if they allow their supplier to use these schemes unscrupulously. 

Health & Safety

Our health and safety management system continues to develop using the HSE HSG65 - "Successful Health and Safety Management" guidance as the framework.  2012 saw yet another reduction in the Accident Frequency Rate, to 0.16, which is a further reduction of 16% on the previous year.  Staffline continues to develop its positive culture through its Safety Committee and Safety Champions. 

ISO 9001 and Investors in People (IIP)

In November 2012 Staffline have successfully passed an official ISO external audit confirming continued accreditation, reaffirming our systems and processes are fully compliant with the ISO 9001 standards.  As part of our continuous development culture, Staffline remains proud of our Investors in People status.

People

With the continued expansion of the Group, we have seen an increase to 428 employees in our recruitment business and Shared Services this year, giving average sales per employee of £827,000 compared to £763,000 in 2011.  In addition a further 224 people are employed by EOS, bringing the Group's total workforce to 652.

In 2012, continuing on the great success of development  in operations we enjoyed in 2011, 16 employees passed their REC Certificate in Recruitment Practice, 24 passed the Real Account Management course, 12 achieved Delight the Customer, 10 passed the external business writing course and 4 achieved the Chartered Institute of Environmental Health  Level 4 exam in Food Hygiene.

In addition , within our Shares Services staff, 3 attended Advanced Certificate in Payroll Techniques, 3 First Aid at Work, 1 Professional CIMA Qualification Dip.MA, with many others attending courses in tax, credit control and other relevant subjects.  We congratulate them all on their achievements. 

2012 saw the introduction of our residential Leadership Development Course, attended by 20 potential senior managers of the future, which was a great success and continues with a further 20 delegates in 2013.

Compliance

We take compliance with legislation and industry standards extremely seriously, offering a total commitment to all of our clients to ensure that all of our workers, whether or not covered by the legislation, are recruited and supplied to the standards required by the Gangmaster Licencing Authority.  This total commitment gives our clients the assurance that all UK ethical and legal standards are fully met.  We operate a confidential helpline for our workers to report any concerns and conduct regular surveys to ensure we are achieving our own high standards. 

Investing for Growth

To help us achieve the highest compliance standards we are continuing to develop our new bespoke management information system, Infinity+, which will further improve our operating efficiency.  All of the Group's locations are now live with Infinity+ and we are already deriving a wide range of benefits from it. The new system will provide the platform for further development that will deliver greater efficiencies in the business processes. 

Agency Workers Regulations

These regulations, introduced in October 2011, require recruitment businesses to ensure that temporary contractors working alongside comparable client employed staff are, amongst other things, paid the same amount and enjoy the same holidays.  The initial concern amongst some industry commentators that these regulations might cause disruption has not materialised.

Board Changes

As indicated in the announcement made on 21 February 2013, Marshall Evans has decided to retire from the Board and assume a part-time role with the Group going forward.  I would like to personally thank Marshall for providing excellent help and support over the past 10 years and for playing a central role in the growth and success of Staffline.  His continued availability, albeit on a part-time basis, and his decision to remain a member of the Board of the REC and the GLA, will be greatly appreciated.

I am also pleased to acknowledge the promotion of Shaun Brittain to Joint Managing Director of Staffline Recruitment Ltd.  Shaun will be resigning from the Group Board following this promotion to focus on his broader day to day operational duties.  Andrew Coop, currently Operations Director at Staffline, will also hold the title of Joint Managing Director of Staffline Recruitment Ltd, and will be responsible for Logistics and Distribution services.

Diane Martyn has agreed to become Group Managing Director having joined Staffline as Non-Executive Director last year.  Diane will become a full time Executive Director and remain on the Group Board.

Finally I would once again thank all our employees for their dedication in ensuring we always offer the best and most innovative service to our clients.

Current Trading

The first 7 weeks of trading have started strongly and we have developed an excellent pipeline from new and existing customers for the first half of 2013.  We have opened a specialised Driving division in Great Britain and in addition have committed to our existing business in Ireland with the appointment of a Divisional Director and team with responsibility for the Group's growth in that country. We have also recruited the new senior team to manage Select Appointments. 

Despite the on-going threat arising from the abusive use by some competitors of Travel and Subsistence schemes , the majority of our clients appreciate the reassurance that we offer as a financially stable, ethical and fully compliant public company.  Our new business pipeline continues to grow as clients increasingly search for best in class staffing solutions both from a regulatory and business perspective.

I am therefore confident that the Group will enjoy another year of substantial and profitable growth in 2013.

Andy Hogarth

Chief Executive

25 February 2013

Finance Director's Report

Financial Highlights

The total revenues for the year increased by 27% to £367.0m (2011: £288.3m) reflecting the impact of strong demand for our services from existing customers, new business wins in 2011 and 2012 and also the impact of the acquisitions made during last year and this year.  The successful growth of our OnSite business has continued albeit with increased competitive pressure on operating margins. This has resulted in a reduction in overall gross margin to 9.5% (2011: 10.8%).  However, adjusted profit from operations has increased by 4% to £10.7m (2011: £10.3m). The charge for amortisation has reduced by £0.8m to £1.8m as historic acquisitions become fully amortised. The charge for employee share options has increased by £0.2m to £0.4m largely due to the share price increasing significantly during the closing months of 2012.

The investment in acquisitions, the Welfare to Work business and the growth in working capital offset by continued strong cash flow generation, has led to finance charges increasing to £0.4m (2011: £0.1m) and this has reduced interest cover to a still comfortable 24 times (2011: 60 times).  The interest rates on our overdraft facility remain unchanged during the year, at 2.25% (2011: 2.0%) over bank base rate, while the rate for term borrowings remained at 1.0% (2011: 1.0%) over bank base rate and the Revolving Credit Facility at 2.25% to 2.5% over LIBOR.

Profit before tax for the year increased to £8.5m (2011: £7.5m) and profit after tax increased to £6.4m (2011: £5.6m).

Earnings per Share

The basic earnings per share increased by 15% to 29.7p (2011: 25.9p) and the diluted earnings per share increased by 14% to 28.7p (2011: 25.0p).

Dividends

The Directors propose a final dividend of 5.0p per share against 4.2p per share last year. This gives a total dividend for the year of 8.1p per share which is 14% ahead of the 7.1p per share paid in respect of 2011.

Subject to shareholder approval at the AGM, the final dividend will be paid on 3 July 2013 to shareholders on the register on 31 May 2013.

Acquisitions

During the year we completed four acquisitions for a total consideration of £5.0m. This amount is comprised of £2.8m cash paid at completion, and further potential consideration of £2.2m, £1.0m of which is dependent on future profitability. The acquisitions will add around £18.9m to turnover in a full year, and have resulted in the recognition in the Group balance sheet of additions to goodwill of £0.9m and additions to intangible assets of £0.9m. The intangible assets will be amortised over a period ranging from 1 to 2 years. The acquisitions have been funded from existing bank facilities together with an additional Revolving Credit Facility of £2.5m.

Balance Sheet

The Group balance sheet has strengthened during the year, with net current assets rising by £6.6m to £11.7m (2011: £5.1m) and a strengthened ratio of current assets to current liabilities of 1.23 (2011: 1.11).  It is also pleasing to report that despite the significant growth in the business and investment in acquisitions gearing has reduced to 12% (2011: 15%). The Group continues to be focused on cash generation and ensuring a robust balance sheet to support the growth of the business.

Financing

The Group's current bank facilities include a term loan of £0.6m, repayable in quarterly instalments up to June 2013, a revolving credit facility of up to £7.5m and an overdraft of up to £15.0m.  At 31 December 2012 the Group was in a net cash position (excluding the revolving credit facility and term loans).  The overdraft facility is renewable annually and was renewed in February 2013 on similar terms to last year.  The Board believes that these facilities will ensure that the Group has sufficient headroom to manage the current operations as well as supporting the continued growth of the business. 

Post tax cash generation during the year has been strong and the relentless focus on debtor management has succeeded in limiting our working capital increase to £2.4m despite the 27% increase in sales. The growth and investment in the business offset by strong operational cash generation have resulted in net debt falling slightly to £4.6m (2011: £4.9m). The investment included £4.1m in acquisitions during the year covering Select Appointments Limited, Go New Recruitment Limited and 2 other businesses, and a further £0.4m investment in our systems development.

Tim Jackson

Finance Director

25 February 2013

Consolidated statement of comprehensive income

For the year ended 31 December 2012

		2012 Before amortisation	2012 Amortisation	2012 Total	2011  Total
		£'000	£'000	£'000	£'000
Continuing operations
Sales revenue		366,980	-	366,980	288,303
Cost of sales		(332,268)	-	(332,268)	(257,161)
Gross profit		34,712	-	34,712	31,142
Administrative expenses	5	(23,600)	-	(23,600)	(20,667)
Operating profit before amortisation of intangibles and share based charge		11,112	-	11,112	10,475
Administrative expenses - Share based payment charge		(426)	-	(426)	(209)
Administrative expenses - Amortisation of intangibles		-	(1,802)	(1,802)	(2,606)
Profit from operations		10,686	(1,802)	8,884	7,660
Finance costs		(363)	-	(363)	(126)
Profit for the period before taxation		10,323	(1,802)	8,521	7,534
Tax expense		(2,559)	448	(2,111)	(1,976)
Net profit and total comprehensive income for the period		7,764	(1,354)	6,410	5,558
Total comprehensive income attributable to:
Non-controlling interest				(11)	(69)
Owners of the parent				6,421	5,627
Earnings per ordinary share
Basic				29.7p	25.9p
Diluted				28.7p	25.0p

Consolidated statement of changes in equity

For the year ended 31 December 2012

	Share capital	Own shares JSOP	Share premium	Share based payment reserve	Profit and loss account	Total attributable to owners of parent	Non-controlling interest	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2012 (audited)	2,284	(1,157)	15,928	229	17,702	34,986	(87)	34,899
Dividends	-	-	-	-	(1,578)	(1,578)	-	(1,578)
Share options issued in equity settled share based payments	-	-	-	32	-	32	-	32
Share options exercised	5	-	41	(186)	186	46	-	46
Acquisition of non-controlling interest	-	-	-	-	(58)	(58)	58	-
Transactions with owners	5	-	41	(154)	(1,450)	(1,558)	58	(1,500)
Profit for the period	-	-	-	-	6,421	6,421	(11)	6,410
Total comprehensive income for the period	-	-	-	-	6,421	6,421	(11)	6,410
At 31 December 2012	2,289	(1,157)	15,969	75	22,673	39,849	(40)	39,809

Consolidated statement of changes in equity (continued)

For the year ended 31 December 2012

	Share capital	Own shares JSOP	Share premium	Share based payment reserve	Profit and loss account	Total attribut-able to owners of parent	Non- controlling interest	Total Equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2011	2,264	(1,157)	15,735	198	13,512	30,552	(18)	30,534
Dividends	-	-	-	-	(1,437)	(1,437)	-	(1,437)
Share options issued in equity settled share based payments	-	-	-	31	-	31	-	31
Share options exercised	20	-	193	-	-	213	-	213
Transactions with owners	20	-	193	31	(1,437)	(1,193)	-	(1,193)
Profit for the period	-	-	-	-	5,627	5,627	(69)	5,558
Total comprehensive income for the period	-	-	-	-	5,627	5,627	(69)	5,558
Balance at 31 December 2011	2,284	(1,157)	15,928	229	17,702	34,986	(87)	34,899

Consolidated statement of financial position

As at 31 December 2012

		31 December 2012	31 December 2011
		£'000	£'000
Assets
Non-current assets
Goodwill		30,971	30,032
Other intangible assets		3,031	3,898
Property, plant & equipment		2,343	2,811
Deferred tax asset		140	-
		36,485	36,741
Current
Trade & other receivables		59,598	46,744
Cash and cash equivalents		3,650	3,687
		63,248	50,431
Total assets		99,733	87,172
Liabilities
Current
Trade and other payables		46,678	38,463
Borrowings		678	2,984
Other current liabilities		2,928	2,345
Current tax liabilities		1,325	1,519
		51,609	45,311
Non-current
Borrowings		7,556	5,624
Other non-current liabilities		70	392
Deferred tax liabilities		689	946
Total liabilities		59,924	52,273
Equity
Share capital		2,289	2,284
Own shares		(1,157)	(1,157)
Share premium		15,969	15,928
Share based payment reserve		75	229
Profit & loss account		22,673	17,702
		39,849	34,986
Non-controlling interest		(40)	(87)
Total equity		39,809	34,899
Total equity & liabilities		99,733	87,172

Consolidated statement of cash flows

For the year ended 31 December 2012

		Year ended 31 December 2012	Year ended 31 December 2011
		£'000	£'000
Net cash inflow from operating activities (note 4)		6,843	402
Cash flows from investing activities
Purchases of property, plant and equipment		(543)	(1,115)
Sale of property, plant and equipment		24	-
Acquisition of businesses - deferred consideration for prior acquisitions		(1,454)	(1,528)
Acquisition of businesses - deferred consideration for current acquisitions		(168)	(351)
Acquisition of businesses - cash acquired		315	8,896
Acquisition of businesses - cash paid		(2,810)	(7,701)
Net cash used in investing activities		(4,636)	(1,799)
Cash flows from financing activities:
New loans		2,500	5,000
Loan repayments		(1,060)	(809)
Interest paid		(338)	(126)
Dividends paid		(1,578)	(1,437)
Proceeds from the issue of share capital		46	213
Net cash flows from financing activities		(430)	2,841
Net change in cash and cash equivalents		1,777	1,444
Cash and cash equivalents at beginning of period		1,841	397
Cash and cash equivalents at end of period		3,618	1,841
Net debt at beginning of year		(4,921)	(2,264)
Net change in cash and cash equivalents		1,777	1,444
Decrease in loans		1,060	899
Increase in RCF		(2,500)	(5,000)
Net debt at end of period		(4,584)	(4,921)

1.         Accounting policies

The principal accounting policies adopted by the Group, which have been applied consistently, are set out in the statutory financial statements for the year ended 31 December 2012.

Basis of preparation

The consolidated financial statements of Staffline Group plc and its subsidiaries ('the Group') have been prepared under the historical cost convention and in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. 

2              Segmental reporting

Management currently identifies two operating segments: the provision of recruitment and outsourced human resource services to industry and the provision of welfare to work services. These operating segments are monitored by the Group's Board and strategic decisions made on the basis of segment operating results.

Segment information for the reporting period is as follows:

	Recruitment services  2012	Welfare to work  2012	Total Group 2012	Recruitment services 2011	Welfare to work 2011	Total Group 2011
	£'000	£'000	£'000	£'000	£'000	£'000
Segment continuing operations:
Sales revenue from external customers	354,121	12,859	366,980	278,631	9,672	288,303
Cost of sales	(322,201)	(10,067)	(332,268)	(251,698)	(5,463)	(257,161)
Segment gross profit	31,920	2,792	34,712	26,933	4,209	31,142
Administrative expenses	(21,256)	(1,422)	(22,678)	(17,751)	(2,219)	(19,970)
Depreciation	(360)	(562)	(922)	(251)	(446)	(697)
Segment operating profit before amortisation of intangibles and share based payment charge	10,304	808	11,112	8,931	1,544	10,475
Administrative expenses - share based payment charge	(426)	-	(426)	(209)	-	(209)
Amortisation of intangibles	(1,349)	(453)	(1,802)	(1,568)	(1,038)	(2,606)
Segment profit from operations	8,529	355	8,884	7,154	506	7,660
Segment assets	91,779	7,954	99,733	77,633	9,539	87,172

2              Segmental reporting (continued)

The Group purchased Eos Works Group Limited (Eos), a welfare to work provider, on 21 April 2011 thus creating two segments during the year ended 31 December 2011. 

During 2012, two customers in the recruitment services segment contributed greater than 10% of that segment's revenues being 17.4% and 10.8% of that segment's revenues (2011: one customer greater than 10%). The welfare to work segment revenues relate solely to one customer.

The Group's revenues from external customers and its non-current assets all arise in the United Kingdom.

3              Tax expense

The relationship between the expected tax expense and the tax expense actually recognised in the statement of comprehensive income can be reconciled as follows:

	2012 £'000	2012 %	2011 £'000	2011 %
Result for the year before tax	8,521		7,534
Tax rate		24.5%		26.5%
Expected tax expense	2,088		1,997
Adjustment for non-deductible expenses relating to short term temporary differences	13		20
Other non-deductible expenses	168		390
Adjustment in respect of prior year	-		124
Deferred tax credit	(158)		(555)
Actual tax expense	2,111	24.8%	1,976	26.2%
Tax expense comprises:
Current tax expense	2,269		2,531
Deferred tax expense
Origination and reversal of temporary differences	(158)		(555)
Tax expense	2,111		1,976

4              Cash flows from operating activities

		Year ended 31 December 2012	Year ended 31 December 2011
Profit before taxation		8,521	7,534
Adjustments for:
Finance costs		363	126
Depreciation, loss on disposal and amortisation		2,853	3,137
Operating profit before changes in working capital and provisions		11,737	10,797
Change in trade and other receivables		(6,482)	(10,324)
Change in trade and other payables		4,044	1,506
Cash generated from operations*		9,299	1,979
Employee cash settled share options		394	178
Employee equity settled share options		32	31
Taxes paid		(2,882)	(1,786)
Net cash inflow from operating activities		6,843	402

* The cash generated from operations in 2011 was lowered by £7,141,000 as a result of creditors acquired through acquisitions but paid after acquisition.

5              Business combinations

The Company made a total of 4 acquisitions during the year. An adjustment was required to the book values of the assets and liabilities of the businesses acquired in order to present the net assets at fair values in accordance with group accounting policies. The purchases were accounted for as acquisitions. Goodwill is primarily related to growth expectations, expected future profitability, the skill and expertise of the acquired workforce, and expected cost synergies. The goodwill that arose from these business combinations is not expected to be deductible for tax purposes.

The following acquisitions were made during the year to enhance the Group's recruitment services segment:

·   On 10 August 2012 a Group undertaking  acquired the trade and assets of DKM Driving Limited and DKM Energy Limited, based in Nottingham;

·   On 14 September 2012 a Group undertaking acquired Go New Recruitment Limited, based in Swindon and Go New Recruitment (Gloucester) Limited based in Gloucester and assumed control by acquiring 100% of the voting rights;

·   On 23 October 2012 a Group undertaking acquired Select Appointments Limited and assumed control by acquiring 100% of the voting rights; and

·   On 11 December 2012 a Group undertaking acquired the trade and assets of GB Resourcing Limited, based in Birmingham.

5              Business combinations (continued)

These acquisitions were individually immaterial to the Group and have therefore been disclosed in aggregate. The aggregate amounts in respect of the above are detailed below:

	Book Value		Provisional
	at Acquisition	Fair Value Adjustment	FV to group
	£'000	£'000	£'000
Intangible Assets - customer lists	-	935	935
Fixtures and fittings	16	-	16
Trade and other receivables	6,372	-	6,372
Cash at bank	315	-	315
Deferred tax asset	246	(211)	35
Deferred tax liability	-	(185)	(185)
Trade and other payables	(3,426)	-	(3,426)
Net assets at acquisition	3,523	539	4,062
Goodwill			939
			5,001
Satisfied by:
Cash			2,810
Contingent consideration			1,033
Deferred consideration			1,158
			5,001

Acquisition costs recognised as expenses (included within administrative expenses) in the year amounted to £82,597 (2011: £57,000).

Consideration transferred

The acquisitions were settled in cash amounting to £2,810,000 with future consideration payable of £1,158,000. The purchase agreements included an additional contingent consideration of £1,033,000 payable only if the profits met the target level agreed by both parties. The additional consideration will be paid in accordance with the specific agreements for each acquisition. The fair value of the contingent consideration liability initially recognised also reflects management's estimate as at 31 December 2012 based on current results and forecasts.

Identifiable net assets

The fair value of trade and other receivables acquired as part of the business combination amounted to £6,372,000 which equated to the gross contractual amount.

Contribution to the Group results

The above acquisitions contributed post acquisition revenues of £3,597,000 and profits totalling £129,000. If the acquisitions had been made on 1 January 2012 revenues of £18,390,000 and an operating profit before amortisation of intangible assets of £502,000 would have been included.

5              Business combinations (continued)

Goodwill

The goodwill recognised relates to expected synergies to be achieved as a result of combining the operations of the businesses.

Acquisition of non controlling interest

On 26 July 2012 the company acquired the balance of shares that it did not already own in House of Logistics Limited for nil consideration. Following the transaction the company owns 100% of the share capital and the subsidiary became a dormant company.

6              Earnings per share

The calculation of basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year, after deducting any own shares (JSOP). The calculation of the diluted earnings per share is based on the basic earnings per share adjusted to allow for all dilutive potential ordinary shares.

Details of the earnings and weighted average number of shares used in the calculations are set out below:

	Basic	Basic	Diluted	Diluted
	2012	2011	2012	2011
Earnings (£'000)	6,410	5,558	6,410	5,558
Weighted average number of shares	21,614,114	21,446,973	22,343,159	22,223,142
Earnings per share (pence)	29.7p	25.9p	28.7p	25.0p
Earnings per share (pence) before amortisation	35.9p	35.1p	34.8p	33.9p

The weighted average number of shares has been increased by 729,045 (2011: 776,169) shares to take account of all dilutive potential ordinary shares that could be issued under the share option scheme and all shares issued during the year excluding own shares.

7              Dividends

During the year, Staffline Group plc paid interim dividends of £670,210 (2011: £623,853) to its equity shareholders. This represents a payment of 3.1p (2011: 2.9p) per share. A final dividend of £1,081,566 has been proposed (2011: £908,027) but has not been accrued within these financial statements. This represents a payment of 5.0p (2011: 4.2p) per share. The final dividend for 2011 was declared and paid in 2012.

8              Publication of non-statutory accounts

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 434 of the Companies Act 2006.

The consolidated summarised income statement, the consolidated summarised statement of changes in equity, the consolidated summarised balance sheet and the consolidated summarised cash flow statement and associated notes have been extracted from the Group's 2012 statutory financial statements upon which the auditor's opinion is unqualified and does not include any statement under Section 498 of the Companies Act 2006.

Those financial statements have not yet been delivered to the registrar of companies.

This information is provided by RNS

The company news service from the London Stock Exchange

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