Kellan () : Half Yearly Report

RNS Number : 5996H

Kellan Group (The) PLC

19 August 2016

19 August 2016

The Kellan Group PLC

("Kellan" or "the Group")

Interim results for the six months ended 30 June 2016

Kellan Group plc (the "Group" or the "Company" or "Kellan") is a market leading recruitment business operating across a wide range of functional disciplines and industry sectors.

Financial Summary

· In the six months ended 30 June 2016, the Group's year-on-year sales declined by 13% to £10.0 million, compared with £11.5 million in H1 2015; while Net Fee Income (NFI) declined by 10% from £3.7 million in H1 2015 to £3.3 million in H1 2016.

· Continuous focus on overheads with administrative expenses reduced by 2% to £3.3 million over H1 2016, compared with £3.4 million during the comparable period in H1 2015 and £3.5 million in H2 2015.

· Adjusted EBITDA profit (Note 2) of £0.2 million during H1 2016 compared with £0.4 million during H1 2015.

· Loss of £0.1 million during H1 2016, compared with a profit of £0.2 million during the comparable period last year. Excluding the effect of the £150,000 favourable share based payment adjustment in H1 2015, year-on-year earnings before tax declined from break even in H1 2015 to a loss of £0.1 million in H1 2016.

Operational summary

· Berkeley Scott continues to be the leader in hospitality and leisure recruitment markets. January saw Berkeley Scott return to the Birmingham market, and the team have performed well.

· The RK business has continued to grow and has seen increased success within the construction, manufacturing and practice markets.

ENQUIRIES:

The Kellan Group PLC	Tel: [phone]
Rakesh Kirpalani, Group Finance Director
Allenby Capital Limited	Tel: [phone]
David Worlidge / James Thomas

Executive Chairman's Statement

The results for the first six months of 2016 have been disappointing, although the Group has had success in securing new clients and growing some areas of the business. Group sales have decreased by 13% from £11.5 million in H1 2015 to £10.0 million in H1 2016, while administrative expenses have reduced by 2% from £3.4 million in H1 2015 to £3.3 million in H1 2016. Overall loss for H1 2016 of £141,000 compared with a profit of £187,000 in H1 2015. Excluding the effect of the £150,000 favourable share-based payment adjustment in H1 2015, year-on-year earnings before tax declined from break even in H1 2015 to a loss of £0.1 million in H1 2016. Adjusted EBITDA for H1 2016 of £211,000 compared with £382,000 in H1 2015.

Berkeley Scott's temporary business was flat year-on-year with the new Living Wage impacting H1 performance. The Tourism, Hospitality and Leisure sector has one of the highest proportion of jobs paying the minimum wage of any sector in the UK. Berkeley Scott saw several major clients re-evaluate their staffing levels, pay structures and usage of temporary workers to negate the impact of the minimum wage on their business. January saw Berkeley Scott return to the Birmingham market to leverage many of our national contract catering clients who have been supportive of this Midlands opening.

Berkeley Scott's permanent business NFI declined by 10% on H1 2015 with the London market proving to be more challenging than anticipated with NFI from London declining by 14% on H1 2015.

Following careful evaluation of our performance, the Berkeley Scott business was restructured with Mark Darby becoming directly responsible and managing Berkeley Scott London which, as a whole, was one of the main contributors to the underperformance. The Directors believe it is very important that this large part of the business is turned around over H2.

The RK business continues to grow and has seen increased success within property, construction and manufacturing sectors. A focus on practice markets has delivered promising results, particularly in Lancashire.

Quantica Technology has seen its NFI decline by £290,000; of which £127,000 relates to the closure of the Birmingham branch in Q2 2015. The retail division has benefited from the rise of new hybrid roles in the market and has delivered growth on the same period last year. Quantica Search and Selection has re-established relationships with PSL clients and won new SME business.

Uncertainty surrounding the EU referendum has been a distraction in H1 of 2016 with many clients taking longer to make decisions. We have also seen some general slowness post referendum in job flow and candidate attraction.

My sincerest thanks goes to our staff, all of our customers, and to all our loyal shareholders for their continued support.

Richard Ward

Executive Chairman

Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2016

			Unaudited	Unaudited	Audited
			6 months	6 months	12 months
			ended	ended	ended
			30 June	30 June	31 December
			2016	2015	2015
		Note	£000	£000	£000
Revenue			9,985	11,492	24,864
Cost of sales			(6,650)	(7,788)	(17,163)
Net Fee Income			3,335	3,704	7,701
Administrative expenses			(3,304)	(3,363)	(6,877)
Operating profit		2	31	341	824
Financial income			-	2	8
Financial expenses			(172)	(156)	(406)
(Loss)/Profit before tax			(141)	187	426
Tax credit			-	-	-
(Loss)/Profit for the period			(141)	187	426
Attributable to:
Equity holders of the parent			(141)	187	426
(Loss)/Profit per share in pence
Basic		3	(0.04)	0.06	0.13
Diluted		3	(0.04)	0.06	0.11

The above results relate to continuing operations.

There are no other items of comprehensive income for the period or for the comparative periods.

Consolidated Statement of Financial Position

as at 30 June 2016

							Unaudited	Unaudited	Audited
							30 June	30 June	31 December
							2016	2015	2015
						Note	£000	£000	£000
Non-current assets
	Property, plant and equipment						338	307	382
	Intangible assets					6	6,021	6,237	6,129
							6,359	6,544	6,511
Current assets
	Trade and other receivables					4	3,288	3,733	4,415
	Cash and cash equivalents						315	219	1,708
							3,603	3,952	6,123
Total assets							9,962	10,496	12,634
Current liabilities
	Loans and borrowings						2,118	845	2,887
	Trade and other payables					5	2,639	3,289	3,056
	Provisions						18	128	67
							4,775	4,262	6,010
Non-current liabilities
	Loans and borrowings						1,776	2,993	3,095
	Provisions						65	2	42
							1,841	2,995	3,137
Total liabilities							6,616	7,257	9,147
Net assets							3,346	3,239	3,487
Equity attributable to equity holders of the parent
	Share capital						4,274	4,274	4,274
	Share premium						14,746	14,746	14,746
	Convertible debt reserve						170	170	170
	Capital redemption reserve						2	2	2
	Retained earnings						(15,846)	(15,953)	(15,705)
Total equity							3,346	3,239	3,487

Consolidated Statement of Changes in Equity

for the six months ended 30 June 2016

	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited
	Share	Share	Warrant	Convertible	Redemption	Retained	Total
	capital	premium	reserve	reserve	reserve	earnings	equity
	£000	£000	£000	£000	£000	£000	£000
Balance at 31 December 2014	4,274	14,711	36	164	2	(15,981)	3,206
Total comprehensive profit for the 6 month period ended 30 June 2015	-	-	-	-	-	187	187
Issue of shares	-	35	-	-	-	-	35
Share based payment	-	-	-	-	-	(150)	(150)
Equity component of convertible loan notes	-	-	(36)	6	-	(9)	(39)
Balance at 30 June 2015	4,274	14,746	-	170	2	(15,953)	3,239
Total comprehensive profit for the 6 month period ended 31 December 2015	-	-	-	-	-	239	239
Equity component of convertible loan notes	-	-	-	-	-	9	9
Balance at 31 December 2015	4,274	14,746	-	170	2	(15,705)	3,487
Total comprehensive loss for the 6 month period ended 30 June 2016	-	-	-	-	-	(141)	(141)
Balance at 30 June 2016	4,274	14,746	-	170	2	(15,846)	(3,346)

Consolidated Statement of Cash Flows

for the six months ended 30 June 2016

					Unaudited	Unaudited	Audited
					6 months	6 months	12 months
					ended	ended	ended
					30 June	30 June	31 December
					2016	2015	2015
					£000	£000	£000
Cash flows from operating activities
(Loss)/Profit for the period					(141)	187	426
	Adjustments for:
	Depreciation and amortisation				157	171	327
	Interest income				-	(2)	-
	Interest paid				138	129	370
	Amortisation of loan cost				10	19	29
	Equity settled convertible loan interest				24	7	7
	Equity settled share-based payment/(adjustment)				-	(150)	(150)
					188	361	1,009
	Decrease/(Increase) in trade and other receivables				1,127	122	(560)
	(Decrease)/Increase in trade and other payables				(417)	333	108
	Decrease in provisions				(26)	(26)	(47)
Net cash inflow from operating activities					872	790	510
Cash flows from investing activities
	Interest received				-	2	-
	Acquisition of property, plant and equipment				(5)	(37)	(161)
Net cash outflow from investing activities					(5)	(35)	(161)
Cash flows from financing activities
	Repayment of invoice discounting balance				(2,122)	(1,584)	458
	Interest paid and loan costs				(138)	(129)	(276)
	Repayment of term loan borrowings				-	(15)	(15)
	Net cash inflow/(outflow) from financing activities				(2,260)	(1,728)	167
	Net (decrease) / increase in cash and cash equivalents				(1,393)	(973)	516
	Cash and cash equivalents at the beginning of the period				1,708	1,192	1,192
Cash and cash equivalents at the end of the period					315	219	1,708

Notes

(forming part of the financial statements)

1 Accounting policies

Accounting periods

The accounting reference date of the Group is 31 December. The current half year interim results are for the six months ended 30 June 2016. The comparative half year interim results are for the six months ended 30 June 2015. The comparative year's results are for the twelve months ended 31 December 2015.

Financial information

The financial information for the six months ended 30 June 2016 and the six months ended 30 June 2015 are unaudited and un-reviewed and do not constitute the Group's statutory financial statements for those periods. The comparative financial information for the full year ended 31 December 2015 has, however, been derived from the audited statutory financial statements for that period. A copy of those statutory accounts for that period has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified and did not contain statements under Chapter 3 of Part 16 of the Companies Act 2006.

Basis of preparation

The half year interim financial statements have been prepared on a going concern basis using the recognition and measurement principles of IFRS as endorsed for use in the European Union. The accounting policies used in the preparation of these condensed financial statements are set out in the statutory financial statements for the period ended 31 December 2015 which are also the policies that are expected to be applicable at 31 December 2016.

Based on the Group's latest trading expectations and associated cash flow forecasts, the directors have considered the cash requirements of the Company and, subject to the refinancing or conversion of the £1.35m loan notes which are repayable in February 2017, have concluded that the Group will be able to operate within its existing facilities for the next twelve months. These facilities comprise an invoice discounting facility of up to £4 million dependent on trading levels. The Directors also recognise that there is a general sensitivity to the wider macro-economic environment which may necessitate a requirement for additional funding. However, based on the ongoing support from major shareholders and management's trading expectations; the Directors are confident that the Group will be able to meet its liabilities as they fall due for the foreseeable future. It is on this basis that the Directors consider it appropriate to prepare the Group's financial statements on a going concern basis.

2 Reconciliation of operating loss to adjusted EBITA and adjusted EBITDA

	Unaudited	Unaudited	Audited
	6 month	6 month	12 month
	period ended	period ended	period ended
	30 June	30 June	31 December
	2016	2015	2015
	£000	£000	£000
Operating profit as per accounts	31	341	824
Add back
Amortisation of intangible assets	108	108	216
Share-based payments adjustment	-	(150)	(150)
Restructuring costs	23	20	20
Adjusted EBITA	162	319	910
Depreciation	49	63	111
Adjusted EBITDA	211	382	1,021

3 Loss per share

Basic loss per share

The calculation of basic (loss)/earnings per share is as follows:

	Unaudited	Unaudited	Audited
	6 month	6 month	12 month
	period ended	period ended	period ended
	30 June	30 June	31 December
	2016	2015	2015
Weighted average number of shares
Issued ordinary shares at beginning of period	339,645,061	337,894,529	337,894,529
Effect of shares issued	-	1,750,532	1,506,605
Weighted average number of shares at end of period	339,645,061	339,154,527	339,401,134
(Loss)/Profit for the period	(141,000)	187,000	426,000
Basic (loss)/profit per share in pence	(0.04)	0.06	0.13
Diluted (loss)/ profit per share in pence	(0.04)	0.06	0.11

There was no dilution in the current period due to the loss in the period.

The effect of the conversion of the loan notes and the outstanding Employee options has been determined as non-dilutive. As such they have been excluded from the diluted earnings per share calculation.

4 Trade and other receivables

	Unaudited	Unaudited	Audited
	30 June	30 June	31 December
	2016	2015	2015
	£000	£000	£000
Trade receivables	2,923	3,429	4,131
Other receivables	23	23	21
Prepayments and accrued income	342	281	263
	3,288	3,733	4,415

5 Trade and other payables

	Unaudited	Unaudited	Audited
	30 June	30 June	31 December
	2016	2015	2015
	£000	£000	£000
Trade payables	113	57	74
Social security and other taxes	755	902	965
Other creditors	604	910	589
Accruals and deferred income	1,167	1,420	1,428
	2,639	3,289	3,056

6 Intangible Assets

The intangible assets balance at 30 June 2016 of £6,021,000 includes an amount of £5,750,000 relating to goodwill acquired through business combinations. Impairment of this balance has been assessed as at 30 June 2016 and no adjustment was considered necessary. The Directors believe the assumptions used in testing impairment at 31 December 2015 are still valid and have not materially changed. These assumptions will continue to be reassessed on a six monthly basis.

7 Availability of Interim Results

The half year results for the six months to 30 June 2016 will not be posted to shareholders but will be available on the Company's website, www.kellangroup.co.uk.