INCE.L Regulatory News (INCE)

25 Sep 2007 07:02

Work Group plc25 September 2007 Work Group plc - Interims results Results for the six months ended 30 June 2007 Work Group plc, the AIM listed HR consulting services company ("Work Group" orthe "Company"), announces its results for the six months ended 30 June 2007. The first half saw Work Group continue to make progress. A very strongperformance in Employer Marketing has been particularly pleasing, aided by somesignificant client wins. Highlights •Good first half performance, continuing profit growth •Strong profit contribution from latest acquisition, The RecruitmentCommunications Company €39% increase in Employer Marketing gross profit •US office opened in New York •Two more global employer marketing contracts won Financial Highlights 6 month period ended 30 June 2007 30 June 2006 % change £m £m ---------- ---------- --------- Gross profit 7.9 6.5 22 Operating profit before exceptional items 1.4 1.1 26 Operating profit after exceptional items 1.3 1.1 15 Profit before tax 1.3 1.0 28 Profit after tax 0.9 0.7 20 Diluted earnings per share 3.21p 3.08p 4 Diluted earnings per share adjusted* 3.77p 3.08p 22 * Adjusted diluted earnings per share is stated before exceptional items and theequity impact of income tax relief on the exercise of share options (see note 7) Commenting, Simon Howard, Executive Chairman said: "Work Group continues to deliver. The first six months were especially pleasingwith some notable new business wins and the opening of our New York office.Whilst we remain, as ever, selective with acquisitions and reluctant to forecasttiming, we are active with a number of potential M & A opportunities. We note the current uncertainty in the financial markets but remain confidentabout the Company's prospects - particularly as the Group has such a broadspread of clients and is not reliant on any single sector". Further enquiries: Work Group Tel: +44 (0)20 7492 0000Simon Howard, Executive ChairmanMichael Warren, Finance Director Altium Tel: +44 (0)20 7484 4040Garry LevinTim Richardson About Work Group Work Group offers a range of HR Consulting Services which enable employers towin the war for talent. It focuses on providing services in "talent acquisitionand talent development" which enable employers to more effectively recruit andretain key staff. Work Group's approach is to help employers reduce their traditional reliance onthird-party recruiters such as head-hunters and recruitment firms throughhelping them establish and maintain a direct relationship between employer andprospective employee. It also helps employers reduce attrition costs throughbetter people development and retention of key talent. Work Group currently operates through three divisions; Executive Research,Employer Marketing and Recruitment Process Outsourcing and provides servicesfrom its six locations in the UK and an office in New York. www.workgroup.plc.uk Chairman's review The first half of 2007 has been a period of further progress for Work Group.With just two of the highlights being operating profit (before exceptionalitems) up by 26% in comparison to the 6 months ended 30 June 2006 and theopening of our first overseas office in New York. Operating profit grew by 15%.The results for the period were in line with the board's expectations. Over the period we maintained positive growth, both in gross profit andoperating profit margin. Growth has not been even across the divisions -Employer Marketing posted the greatest gross profit growth of 39%. This wasconsiderably helped by the contribution of RCC (acquired in November 2006) butadvances in the Work Regions and Work London businesses also helped pushoperating profit before exceptional items to £1.4m (2006: £1.1m). Operatingprofit increased to £1.3m (2006: £1.1m). In Executive Research the growth has been slower, partly due to a morecompetitive market place and partly as a result of the time investment inestablishing the New York office. However, trading showed a more positive trendtowards the end of the period and we look forward to a stronger performance inthe second half. Recruitment Process Outsourcing (RPO) is our smallest divisionand recorded a small growth in gross profit (7%) while our investment in salesand business development personnel is reflected in the profits dip to £218,000(down 12% from £248,000 in 2006). We continue in our view that employers are increasingly seeking greaterefficiencies from their recruitment budgets and that as a consequence, they areseeking to reduce their dependence on third party recruiters - particularlyrecruitment agencies. This has recently been supported by several reports,particularly one from KPMG highlighting a forecast change in the HR Servicesmarket and greater demand for online services provided direct to the employer *. We remain actively engaged in identifying further potential acquisitions, aspart of our strategy to build a group of HR consulting services which helpemployers to acquire and develop talent. We will continue to be highly selectiveas we are determined that each acquisition adds to the services we sell toexisting customers or brings new customers through consolidation. Consequentlywe are confident that our acquisition strategy will be able to enhance both ourdirect resourcing capability as well as earnings for shareholders. We are pleased with the positive response we received from shareholders to thefull year dividend which was approved at the AGM. It is our intention tocontinue to pay dividends once a year as a full year dividend. Trading since 30 June has been particularly satisfactory and if the currentuncertainty in the financial markets has any direct effects, these have yet tobe seen. Indeed, there is every reason to remain confident about our prospectsas the Group has such a broad spread of clients and is not reliant on any singlesector. Simon HowardChairman * Source: KPMG: Debunking the myth. A report highlighting the escalating "Warfor Talent", causing employers to take a fresh look at recruitment. Operating Review The Group has made further advances in the first six months of 2007. Grossprofit increased by 22% to £7.9m (2006: £6.5m) and operating profit beforeexceptional items grew by 26% to £1.4m (2006: £1.1m). Operating profit increasedby 15% to £1.3m (2006: £1.1m). Operating profit margin (operating profit beforeexceptional items divided by gross profit) also improved at Group level to 17.5%(2006: 17.0%) despite the impact of start-up costs in the US. This is the first reporting period where the financial information has beenprepared under International Financial Reporting Standards (IFRS). The principalchanges are that goodwill is no longer amortised and income tax relief on theexercise of share options is no longer recognised in the income statement. Allprior period comparatives have been restated and more detail on IFRS is given innote 12. Divisional Financial 6 months to 6 months to Increase Year endedPerformance 30 June 2007 30 June 2006 31 Dec 2006 £'000 £'000 % £'000 ------------ ------------ ------- ------------ Gross profit (Net fee income) Employer Marketing 4,549 3,263 39 7,317 RecruitmentProcessOutsourcing 970 907 7 1,712 ExecutiveResearch 2351 2,281 3 4,542 ------------ ---------- ------- ----------Group grossprofit 7,870 6,451 22 13,571 ------------ ---------- ------- ---------- Operating profit beforeexceptional items (Adjusted profit) Employer Marketing 1,018 538 89 1,393 Recruitment ProcessOutsourcing 218 248 (12) 450 Executive Research 516 503 3 874 US costs (147) - - - Corporate costs (224) (192) (17) (263) ------------ ---------- ------- ----------Group adjusted profit 1,381 1,097 26 2,454 ------------ ---------- ------- ---------- Operating profit Employer Marketing 924 538 72 1,393 Recruitment Process Outsourcing 218 248 (12) 450 Executive Research 493 503 (2) 874 US costs (147) - - - Corporate costs (224) (192) (17) (263) ----------- --------- ------- ----------Group operating profit 1,264 1,097 15 2,454 ----------- --------- ------- ---------- Employer Marketing The contribution from the acquisition of RCC completed in November last year hasbeen very positive. Total employer marketing gross profit increased by 39% to£4.5m (2006: £3.3m) and operating profit before exceptional items increased by89% to £1.0m (2006: £0.5m). Operating profit increased by 71% to £0.9m (2006:£0.5m). Excluding RCC, gross profit grew by 4% and operating profit beforeexceptional items increased by 24%. It is particularly pleasing that during aperiod of change for the business, which has included the early stages of theintegration of RCC, operating profit margin has grown to 22.4% (2006:16.5%). The transition from a transactional advertising business to a fee based HRconsulting services organisation continues. These services are focused on talentacquisition and include website design and development, employer branding,campus marketing and the delivery of candidate attraction services andstrategies. Excluding RCC, gross profit from these fee based services grew by31% and, including RCC, now accounts for half of employer marketing grossprofit. This positioning has helped us to win global contracts from majoremployers including Credit Suisse and BP. By the end of the year, fee basedservices will form the dominant income stream in the employer marketingdivision. Following a review of RCC's profit contribution, provision has now been made forthe maximum deferred consideration for RCC of £2.0m payable in April 2008. Recruitment Process Outsourcing (RPO) Although gross profit increased by 7% to £1.0m (2006: £0.9m) operating profitdeclined by 12% due to the investment made in sales and business developmentresource to grow this division more rapidly. The cross selling opportunities areconsiderable as during the six months ended 30 June 2007 only 24% of the Group'stop 50 clients used the RPO service. Executive Research Progress at Armstrong Craven, our executive research business, has been slowerthan planned. Gross profit grew 3% to £2.4m (2006: £2.3m) and was particularlyaffected by the impact of a quiet Easter period. Operating profit beforeexceptional items also grew by 3% to £0.5m (2006: £0.5m). Management attention is clearly focused on growing the volume of assignments inthe second half year. The final deferred consideration payment of £1.43m has now been made to thevendors of Armstrong Craven. Half of this was in the form of loan notes, theother half in Work Group shares. The total consideration paid for the businesswas £5.331m. US Work Group Inc was established in New York to service existing contracts and togenerate new business from a US base. Although still in start up phase, initialfeedback has been positive to our service offering. The pace of investment willbe closely monitored but efficiencies can be achieved by hiring US personnel todeliver local service needs which are currently undertaken by London basedpeople. The cost of establishing the office was £0.2m in the first half of the year. Excluding the start-up costs associated with the US, Group operating profitbefore exceptional items was up 39% to £1.5m (2006: £1.1m). Group Exceptional costs of £0.1m were incurred during the period relating to one-offintegration costs of RCC and Group services which will lead to future savings.Further exceptional costs will be incurred in the latter part of the year as weco-locate the RCC business with Work Manchester. Group Financial 6 months to 6 months to Increase Year ended Performance 30 June 2007 30 June 2006 31 Dec 2006 £'000 £'000 % £'000 ---------- ---------- ---------- ---------- Adjusted profit(Operating profit before exceptional items) 1,381 1,097 26 2,454 Operating profit 1,264 1,097 15 2,454 Profit before tax 1,280 999 28 2,377 Profit after tax 897 745 20 1,795 Diluted EPS (pence) 3.21 3.08 4 6.97 Adjusted diluted EPS(pence) 3.77 3.08 22 7.68 The Group profit before and after tax is shown in the table above. Under IFRS, and IAS12 in particular, a deferred tax asset must be recognisedrelating to the expected income tax relief available on the future exercise ofshare options. When share options are actually exercised, the asset is unwoundmainly through equity and not the income statement. In comparison to the UK GAAPtreatment, the resultant tax charge in the income statement is greater than theactual tax payable in cash terms. Consequently diluted EPS grew by 4% to 3.21p(2006: 3.08p) whereas Adjusted diluted EPS, which removes the impact of thischange, grew 22% to 3.77p (2006: 3.08p). The net cash position at 30 June 2007 was £0.5m after an outflow of £0.4m from31 December 2006. This outflow included a dividend payment of £0.1m. As noted inthe Chairman's statement, it is not the intention to pay an interim dividend. The balance sheet remains strong with debt capacity available for futureacquisitions. Michael WarrenGroup Finance Director Independent review report to Work Group plc Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2007 which comprises the consolidated interimbalance sheet as at 30 June 2007 and the related consolidated statements ofincome, cash flows and changes in shareholders' equity for the six months thenended and the related notes. We have read the other information contained in theinterim report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the AIM Rulesfor Companies which require that the financial information must be presented ina form consistent with that which will be adopted in the company's annualfinancial statements. This interim report has been prepared in accordance with the InternationalAccounting Standard 34, 'Interim financial reporting'. As disclosed in note 2,the next annual financial statements of the company will be prepared inaccordance with IFRSs as adopted by the European Union. The accounting policiesare consistent with those that the directors intend to use in the next annualfinancial statements. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for thecompany for the purpose of the AIM rules for Companies and for no other purpose.We do not, in producing this report, accept or assume responsibility for anyother purpose or to any other person to whom this report is shown or into whosehands it may come save where expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2007. PricewaterhouseCoopers LLPChartered AccountantsLondon24 September 2007 Notes: (a) The maintenance and integrity of the Work Group plc website is theresponsibility of the directors; the work carried out by the auditors does notinvolve consideration of these matters and, accordingly, the auditors accept noresponsibility for any changes that may have occurred to the interim reportsince it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation anddissemination of financial information may differ from legislation in otherjurisdictions. Consolidated income statement for the 6 month period ended 30 June 2007 Note Unaudited Unaudited Unaudited 6 month period 6 month period Year ended 31 ended 30 June ended 30 June December 2006 2007 2006 2006 £'000 £'000 £'000 --------- --------- --------- Revenue 3 19,907 16,252 33,147 Cost of sales (12,037) (9,801) (19,576) --------- --------- ---------Gross profit 7,870 6,451 13,571 Net operating expenses (6,606) (5,354) (11,117) --------- --------- ---------Operating profit beforeexceptional items 1,381 1,097 2,454 Exceptional items 4 (117) - - --------- --------- ---------Operating profit 3 1,264 1,097 2,454 Finance costs (8) (115) (130) Finance income 24 17 53 --------- --------- ---------Profit before taxation 1,280 999 2,377 Taxation 5 (383) (254) (582) --------- --------- ---------Profit for the periodattributable to Equity 897 745 1,795shareholders --------- --------- --------- Earnings per share 7 3.49 3.56 7.93(pence) Diluted earnings per 7 3.21 3.08 6.97share (pence) Dividend paid per share 0.4 - -(pence) The results above are all in respect of continuing operations. Consolidated balance sheet as at 30 June 2007 Note Unaudited Unaudited Unaudited 6 month period 6 month period Year ended 31 ended 30 June ended 30 June December 2006 2007 2006 £'000 £'000 £'000 ---------- ---------- ----------AssetsNon-current assets Goodwill 8 12,167 8,643 11,451 Property, plant & 9 816 838 856equipment Deferred tax assets 511 829 610 ---------- ---------- ---------- 13,494 10,310 12,917 ---------- ---------- ----------Current assets Inventories 241 137 95 Trade and other 8,325 5,729 5,857receivables Cash and cash 1,854 1,101 1,274equivalents ---------- ---------- ---------- 10,420 6,967 7,226 ---------- ---------- ---------- LiabilitiesCurrent liabilities Financial liabilities - (1,383) - (379)borrowings Trade and (7,269) (6,039) (5,574)other payables Provisions (2,000) (1,830) (1,465) Current tax liabilities (803) (210) (500) ---------- ---------- ---------- (11,455) (8,079) (7,918) ---------- ---------- ----------Net current liabilities (1,035) (1,112) (692) ---------- ---------- ----------Non current liabilities Provisions - (31) (1,250) ---------- ---------- ---------- - (31) (1,250) ---------- ---------- ----------Net assets 12,459 9,167 10,975 ---------- ---------- ----------Shareholders' equity Ordinary share capital 10 535 477 510 Share premium 7,202 5,763 6,433 Other reserves 2,826 2,826 2,826 Retained earnings 1,896 101 1,206 ---------- ---------- ----------Total shareholders' equity 12,459 9,167 10,975 ---------- ---------- ---------- Consolidated statement of changes in Shareholders' equity as at 30 June 2007 Unaudited Note Share Share Retained Special Total capital premium earnings reserve Reserves £'000 £'000 £'000 £'000 £'000 ------- ------- -------- ------- -------- At 1 January 2006 296 - (1,129) 2,826 1,993 Profit for theperiod - - 745 - 745 Value of employeeservices - - (5) - (5) Deferred taxationon share options - - 490 - 490 Proceeds from shares issued 181 5,763 - - 5,944 --------- ------- ------- ------- -----At 30 June 2006 477 5,763 101 2,826 9,167 --------- ------- ------- ------- ------Profit for theperiod - - 1,050 - 1,050 Value of employeeservices - - 8 - 8 Deferred taxation on share options - - 47 - 47 Proceeds fromfrom shares issued 33 670 - - 703 --------- ------- ------- ------- ------- At 31 December 510 6,433 1,206 2,826 10,9752006 --------- ------- ------- ------- ------- Profit forthe period - - 897 - 897 Value of employeeservices - - (2) - (2) Deferred taxationon share options - - (99) - (99) Proceeds fromshares issued 10 25 769 - - 794 Dividends paid 6 - - (106) - (106) --------- ------- ------- ------- -------At 30 June 2007 535 7,202 1,896 2,826 12,459 --------- ------- ------- ------- ------- Consolidated cash flow statement for the 6 month period ended 30 June 2007 Note Unaudited Unaudited Unaudited 6 month period 6 month period Year ended 31 ended 30 June ended 30 June December 2006 2007 2006 £'000 £'000 £'000 --------- ---------- ---------Cash flows from operatingactivities Cash (absorbed by)/generatedfrom operations 11 (206) 763 2,118 Interest paid (2) (321) (168) Tax paid (81) - (65) --------- ---------- ---------Net cash (outflow)/inflow from operating activities (289) 442 1,885 --------- ---------- --------- Cash flows from investingactivities Acquisition of businesses(net of cash acquired) - - (1,219) Acquisition expenses - - (123) Deferred Considerationpaid - (400) (400) Interest received 22 17 54 Purchase of property,plant and equipment 9 (131) (125) (254) Proceeds from sale ofproperty,plant andequipment 5 - - --------- ---------- ---------Net cash used in investing activities (104) (508) (1,942) --------- ---------- ---------Cash flows from financingactivities Net proceeds from issue ofOrdinary share capital 79 5,944 6,147 Preference shares redeemed - (500) (500) Loan notes repaid (4) (1,500) (386) Loan stock repaid - - (1,500) Repayment of borrowing - (2,653) (2,680) Dividend paid 6 (106) - - Finance lease payments - (19) (24) Net cash (outflow)/inflow --------- ---------- ---------from financing (31) 1,272 1,057 --------- ---------- --------- (Decrease)/increase in cashin the period/year (424) 1,206 1,000 --------- ---------- ---------Cash and cash equivalents atstart of period/year 895 (105) (105) Cash and cash equivalents atend of period/year 471 1,101 895 Notes:1 Financial information and presentation The financial information contained in this Interim Report does not constitutestatutory accounts within the meaning of the Companies Act 1985 and has not beenaudited. The figures for the six months ended 30 June 2006 and the year ended 31December 2006 have been extracted from the unaudited restatement of the group'sresults from UK GAAP to comply with International Financial Reporting Standards(IFRS). The UK GAAP financial information for the year ended 31 December 2006 is derivedfrom the statutory accounts for that period, which have been filed with theRegistrar of Companies and on which the auditors gave an unqualified opinion. 2 Principal accounting policies Basis of preparation This interim consolidated financial information is for the six months ended 30June 2007 and has been prepared in accordance with IAS 34 "Interim financialreports" and with the accounting policies the group expects to adopt in its 2007annual report. These accounting policies are based on the EU-adopted IFRS andIFRIC interpretations that the group expects to be applicable at that time. TheIFRS and IFRIC interpretations that will be applicable at 31 December 2007,including those that will be applicable on an optional basis, are not known withcertainty at the time of preparing this interim financial information. It istherefore possible that further changes to the accounting policies and thecomparative financial information may be required before their publication inthe 2007 annual report and financial statements. The policies set out below have been consistently applied to all the periodspresented. The consolidated financial statements of Work Group plc were prepared inaccordance with UK GAAP until 31 December 2006. Reconciliations and descriptionsof the effect of the transition from UK GAAP to IFRS on the group's equity andits net income are provided in Note 12. This consolidated interim financial information has been prepared under thehistorical cost convention. Critical estimates and judgements To be able to prepare accounts according to generally accepted accountingprinciples, management and the Board of directors must make estimates andassumptions that affect the asset and liability items and revenue and expenseitems recorded in the interim and final accounts as well as other information.These estimates are based on historical experience and various other assumptionsthat management and the Board believe are reasonable under the circumstances,the results of which form the basis for making judgements about the carryingvalues of assets and liabilities that are not readily apparent from othersources. Actual results may differ from these estimates under differentassumptions or conditions. Areas comprising critical judgement that maysignificantly impact earnings and financial position are valuations of intangible assets, share based payments and deferred tax. Basis of consolidation The group financial statements comprise a consolidation of the financialstatements of the holding company and all of its subsidiary undertakings. Theresults and net assets of subsidiary undertakings acquired are included in theconsolidated income statement and consolidated balance sheet using theacquisition method of accounting from the effective date that control passes. The group has made use of the exemption available under IFRS 1 and not restatedany acquisitions made before 1 January 2006. Revenue and gross profit Revenue, which is stated net of VAT, represents revenue recognised in respect ofemployer marketing services together with fees earned from design, assessmentand development and other consulting services. Revenue from executive researchservices is recognised as contract activity progresses and the right toconsideration is earned. Unbilled revenue on client assignments is included as accrued income withintrade and other receivables. Where individual on account billings exceed revenuerecognised on client assignments, the excess is classified as deferred incomewithin trade and other payables. Revenue from recruitment advertising (within employer marketing services) isrecognised after advertisements have been published and once the right toconsideration is established. Revenue from design, assessment and developmentand other consulting services is recognised as project milestones are completedand the company has the right to consideration for the work performed. Terms of business with certain clients provide for annual and retrospectiverebates dependent on the value of media purchased through the company. Provisionis made for these rebates during the contract year based on the maximumanticipated media spend by the client and is reviewed periodically. At the endof the client contract year any over provision of the rebate is written back tocost of sales once the company is satisfied that there is no contractualliability to the client. Annual retrospective volume rebates are negotiated with certain publications.Estimates are made and reviewed periodically for the total rebate yield based onyear to date actual and forecast expenditure by each publication and accrued asa credit to cost of sales. Media discrepancies arise where there are differences between purchase ordervalues and media invoices. Any debit items arising are investigated and writtenoff to the income statement immediately if deemed irrecoverable. Credit amountsare held for a period of one year, following which they are written back to costof sales following review. Property, plant and equipment The cost of property, plant and equipment is their purchase cost, together withany incidental costs of acquisition. Depreciation is calculated so as to writeoff the cost of property, plant and equipment, less their estimated residualvalues, on a straight-line basis over the expected useful economic lives of theassets concerned. The principal annual rates used for this purpose are: Computer equipment 33% Fixtures and fittings 20% Leasehold improvements over the term of the lease Motor vehicles 25% Goodwill Goodwill is stated at cost less any accumulated impairment losses. Costrepresents the difference between the fair value of the consideration paid onacquisition of a business and the fair value of the group's share of the netidentifiable assets acquired. As permitted by IFRS 1, goodwill arising onacquisitions prior to 1 January 2006 (the IFRS transition date) has been frozenat its UK GAAP carrying value at that date. The Directors consider that customer relationships are not separable intangibleassets since they attach to the employee base and management of the companyacquired and not the company itself. The value assigned to goodwill thereforeprincipally reflects the value of customer relationships, employee base andother non-separable intangible assets. Other intangible assets Where material, other intangible assets acquired as part of a businesscombination are capitalised at fair value at the date of acquisition. Suchassets are amortised to their estimated residual values over their expecteduseful economic lives. Any acquired software licences which do not form part of the operating softwareacquired with a piece of hardware are capitalised on the basis of all costsincurred in bringing them into use. These costs are then amortised over theirexpected useful economic lives. Impairment of non-current assets Goodwill is tested annually for impairment, or earlier if circumstances indicatethat an impairment may have occurred. The impairment reviews are performed atthe cash-generating unit (CGU) level and goodwill is assigned to CGUs for thepurpose of such reviews. At each reporting date, a review for impairment of other non-current assets iscarried out to determine if any events or changes in circumstances indicate thatthe carrying amount of the non-current assets may not be recoverable. Impairment reviews comprise a comparison of the carrying amount of thenon-current asset with its recoverable amount (the higher of the net realisablevalue and value in use). To the extent that the carrying amount exceeds therecoverable amount, the non-current asset is impaired and an impairment loss isrecognised in the income statement. Trade receivables Trade receivables are recognised initially at fair value less any provision forimpairment. A provision for impairment of trade receivables is established whenthere is objective evidence that the group will not be able to collect allamounts due according to the original terms of receivables. The amount of theprovision is the difference between the asset's carrying amount and theestimated future cash flows. The amount of the provision is recognised in theincome statement. Taxation Income tax on the profit for the year comprises current and deferred tax. Incometax is recognised in the income statement except to the extent that it relatesto items recognised directly in equity, in which case it is recognised inequity. Current tax is the expected tax payable on the taxable income for theyear, using tax rates enacted, or substantially enacted, at the balance sheetdate, and any adjustment to tax payable in respect of previous years. As required by IAS 12 (Revised) Deferred taxation is provided using the balancesheet liability method in respect of all temporary differences at the balancesheet date between the tax bases of assets and liabilities and their respectivecarrying values. Deferred taxation is determined using the tax rates and lawsthat have been enacted, or substantially enacted, by the balance sheet date andare expected to apply when the related deferred tax asset or liability isrealised or settled. Deferred tax assets are recognised to the extent that it is probable that futuretaxable profits will be available against which the temporary differences can beutilised. Deferred tax assets and liabilities are not discounted. Cash and cash equivalents Cash and cash equivalents as presented in the balance sheet, consists solely ofcash balances. Bank overdrafts that are repayable on demand and form an integralpart of the group's cash management are included as a component of cash and cashequivalents for the purpose of the cash flow statement, as permitted by IAS 7. Inventories and work in progress Inventories are valued at the lower of cost and net realisable value. Work inprogress represents unbilled costs incurred in respect of revenue not recognisedand is stated at the lower of cost and net realisable value. Hire purchase agreements Assets held under hire purchase agreements are capitalised and disclosed underproperty, plant and equipment at their fair value. The capital element of thefuture payments is treated as a liability and the interest is charged to theincome statement at a constant periodic rate of charge on the remaining balanceof the obligation. Operating leases Costs in respect of operating leases are charged on a straight-line basis overthe lease term. Pensions The group operates a defined contribution scheme, the costs of which arerecognised in the income statement in the period in which they relate. Theassets of the scheme are held separately from those of the Group in anindependent administered scheme. Foreign currencies Assets and liabilities in foreign currencies are translated into sterling at therates of exchange ruling at the balance sheet date. Transactions in foreigncurrencies are translated into sterling at the rate of exchange ruling at thedate of the transaction. Exchange differences are recognised in the incomestatement as they arise. Provisions Provisions are recognised when the group has a present obligation, whether legalor commercial, as a result of a past event, it is probable that an outflow ofresources will be required to settle the obligation, and a reliable estimate canbe made of the amount of the obligation. The group does not discount provisions. Share based payment The group issues equity-settled, share-based payments, in the form of shareoptions, to certain employees. In accordance with IFRS 2, such payments aremeasured at fair value at the date of grant. Fair value is measured using theBlack-Scholes pricing model and is expensed on a straight line basis in theincome statement over the vesting period, based on the group's estimate of thenumber of shares that will eventually vest. The group has applied the provisionsof IFRS 2 only to those options granted after 7 November 2002 and which had notvested by 1 January 2005. Dividends In accordance with IAS 10, dividend distributions to the company's shareholdersare recognised as a liability in the financial statements in the period in whichthe distribution is authorised. Segmental reporting The group recognised three business segments for reporting purposes: Employer Marketing - Development and delivery of candidate attraction services and strategies and internal communications Recruitment Process Outsourcing - Management and design of employers' recruitment, selection and assessment processes Executive Research - Direct executive search and market intelligence services The group also recognises geographical segments as follows: United Kingdom USA Europe Rest of World 3 Segmental analysis Primary Segmental analysis - Business segments Unaudited Employer Recruitment Executive Corporate Group6 month period ended Marketing Process Research30 June 2006 Outsourcing £'000 £'000 £'000 £'000 £'000 -------- --------- -------- -------- -------Revenue 16,107 1,441 2,359 - 19,907 Operating profit(segment result) 924 218 493 (371) 1,264 Unaudited Employer Recruitment Executive Corporate Group6 month period ended Marketing Process Research30 June 2006 Outsourcing £'000 £'000 £'000 £'000 £'000 -------- --------- -------- -------- ------- Revenue 12,611 1,350 2,291 - 16,252 Operating profit(segment result) 538 248 503 (192) 1,097 Unaudited Employer Recruitment Executive Corporate GroupYear ended 31 December Marketing Process Research2006 Outsourcing £'000 £'000 £'000 £'000 £'000 -------- --------- -------- -------- ------- Revenue 25,911 2,678 4,558 - 33,147 Operating profit(segment result) 1,393 450 874 (263) 2,454 Secondary segmental analysis - Geographical segments Unaudited 6 month period 6 month period Year ended 31 ended 30 June ended 30 June December 2006 2007 2006Revenue £'000 £'000 £'000 ------------- ------------- ------------- United Kingdom 19,157 15,715 32,048Europe 410 449 894USA 306 64 149Rest of World 34 24 56 ------------- ------------- ------------- Total 19,907 16,252 33,147 4 Exceptional costs Exceptional costs of £117k were incurred during the period relating to one-offcosts associated with the integration of group services and RCC. 5 Taxation The tax charge for the six month period ended 30 June 2007 is based on theestimated expected effective tax rate for the year ended 31 December 2007. 6 Dividends Unaudited Unaudited Unaudited Year period period ended ended ended 31 December 30 June 30 June 2006 2007 2006 £'000 £'000 £'000 --------- ---------- ---------2006 Final dividend - 0.4 pence per share 106 - - --------- ---------- --------- 106 - - --------- ---------- --------- 7 Earnings per share Unaudited Unaudited Unaudited 6 month period 6 month period ended Year ended ended 30 June 2007 30 June 2006 31 December 2006 Earnings Weighted Per Earnings Weighted Per Earnings weighed Per average share average share average share number amount number amount number amount of shares of shares of shares £'000 '000 Pence £'000 '000 Pence £'000 '000 Pence ------ ------- ------ ------ ------- ------ ------ ------- ------Basicearnings per share 897 25,703 3.49 745 20,938 3.56 1,795 22,638 7.9 ------ ------- ------ ------ ------- ------ ------ ------- ------ Effectofdilutive share - 2,227 (0.28) - 3,283 (0.48) - 3,102 (0.96)options ------ ------- ------ ------ ------- ------ ------ ------- ------ Dilutedearningsper 897 27,930 3.21 745 24,221 3.08 1,795 25,740 6.97share ------ ------- ------ ------ ------- ------ ------ ------- ------ ------ ------- ------ ------ ------- ------ ------ ------- ------Adjustedbasicearnings per 1,055 25,703 4.10 745 20,938 3.56 1,977 22,638 8.73share ------ ------- ------ ------ ------- ------ ------ ------- ------ Adjusteddilutedearningsper share - 2,227 (0.33) - 3,283 (0.48) - 3,102 (1.05) ------ ------- ------ ------ ------- ------ ------ ------- ------ 1,055 27,930 3.77 745 24,221 3.08 1,977 25,740 7.68 ------ ------- ------ ------ ------- ------ ------ ------- ------ Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary shares in issueduring the period. For diluted earnings per share, the weighted average number of shares isadjusted to reflect the impact of all dilutive potential ordinary shares. Earnings reconciliation Unaudited Unaudited Unaudited 6 month period 6 month period Year ended 31 ended 30 June 2007 ended 30 June 2006 December 2006 £'000 £'000 £'000 ------------ ------------ ------------ Statutory Earnings(2007) 897 745 1,795 Add back exceptionalitems 117 - - Tax on exceptionalitems (30%) (34) - - Actual tax deductionon share optionsexercised in the period which has been recognisedin equity 75 - 182 ----------- ------------ -----------Revised earnings forAdjusted EPS 1,055 745 1,977 ------------ ----------- ------------ Adjusted earnings per share excludes the cost of exceptional items (less tax at30%) and the cash impact of the tax savings on share options which have passedthrough equity. 8 Goodwill Unaudited Unaudited Unaudited 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 ---------- ---------- ----------CostAt 1 January 11,451 8,643 8,643Additions - - 3,173Adjustment to deferred consideration 716 - (365) ---------- ---------- ----------At 30 June 12,167 8,643 11,451 ---------- ---------- ----------Accumulated impairment ---------- ---------- ----------At 1 January and 30 June/31 December - - - ---------- ---------- ----------Net book valueAt 30 June/ 31 December 12,167 8,643 11,451 ---------- ---------- ---------- During the period, the deferred consideration liability in respect of theacquisition of Armstrong Craven Limited was settled in full. The finalsettlement was £34,000 lower than the provision and this amount has accordinglybeen released and adjusted in goodwill above. The provision for deferred consideration for the acquisition of The RecruitmentCommunications Company Limited has been increased by £750,000 during the period,based on management estimates of the expected cumulative earnings beforeinterest and tax of the company. 9 Capital Expenditure Unaudited Six months ended 30 June 2007 £'000 -------- Opening net book value at 1 January 2007 856Additions 131Disposals (7)Depreciation (164) --------Closing net book value at 30 June 2007 816 Unaudited Six months ended 30 June 2006 £'000 -------- Opening net book value at 1 January 2006 855Additions 125Disposals (2)Depreciation (140) --------Closing net book value at 30 June 2006 838 Unaudited Year ended 31 December 2006 £'000 -------- Opening net book value at 1 January 2006 855Additions 254Acquisitions 67Disposals (5)Depreciation (316) --------Closing net book value at 31 December 2006 856 10 Called up share capital Unaudited Unaudited Unaudited 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 -------- -------- ---------Authorised75,000,000 ordinary shares of 2p each 1,500 1,500 1,500 -------- -------- --------- 1,500 1,500 1,500 -------- -------- ---------Allotted, called up and fully paid26,768,093 ordinary shares of2p each (30 June 2006 23,854,707 ordinary shares of 2p each; 31 December 2006 25,490,957 ordinary shares of 2p each) 535 477 510 -------- --------- --------- 535 477 510 Share options were exercised during the period, as detailed in the table below.The resultant ordinary shares were issued for cash. In addition, a portion ofthe deferred consideration for Armstrong Craven Limited was settled by 880,074ordinary shares in Work Group plc. The following ordinary shares were issued during the period: Date of issue No. shares Reason--------------- --------- -------------------------3 April 2007 105,062 Exercise of options 18 April 2007 108,000 Exercise of options 25 April 2007 880,074 Deferred Consideration for acquisition of Armstrong Craven Limited 11 May 2007 31,500 Exercise of options 19 June 2007 2,500 Exercise of options 25 June 2007 22,500 Exercise of options 26 June 2007 127,500 Exercise of options --------- Total 1,277,136 ---------- 11 Reconciliation of operating profit to net cash (outflow)/ inflow fromoperations Unaudited Unaudited Unaudited 6 month period 6 month period Year ended 31 nded 30 June 2007 ended 30 June 2006 December 2006 £'000 £'000 £'000 ---------- ---------- ----------Profitattributableto shareholders 897 745 1,795 Adjustments: Taxation 383 254 582 Finance income (24) (17) (53) Finance costs 8 115 130 Depreciation of plant property and equipment 164 140 316 Loss on disposal ofplant property and equipment - 2 5 Share based payments (2) (5) 3 Increase in Inventories (146) (103) (62) Increase in Trade andother receivables (2,532) (1,426) (861) Increase in Trade andother payables 1,046 1,140 376 Decrease in provisions - (82) (113) Net cash (outflow)/inflow ---------- ---------- ----------from operations (206) 763 2,118 ---------- ---------- ---------- 12 Transition to IFRS i) IFRS 1 - First time adoption of International Accounting Standards The group prepared its consolidated financial statements under UK GenerallyAccepted Accounting Principles (UK GAAP) for all reporting periods to 31December 2006. With effect from 1 January 2007 all companies listed on theAlternative Investment Market (AIM) are required to report in accordance withInternational Financial Reporting Standards (IFRS). This interim financialinformation is the group's first published results to be prepared under IFRS andincludes comparative IFRS financial information for the six months ended 30 June2006. The Group will present its first annual report and financial statementsunder IFRS for the year ended 31 December 2007, which will include comparativeIFRS financial information for the year ended 31 December 2006. The Group's IFRStransition date is 1 January 2006, being the first day of the comparativeperiod. In preparing this interim consolidated financial information in accordance withIFRS 1, the Group has applied the mandatory exemptions and certain of theoptional exemptions from full retrospective application of IFRS. ii) Exemptions from full retrospective application applied by the group Optional Exemptions Business combination exemption - The Group has not restated businesscombinations that took place prior to the 1 January 2006 transition date, asallowed under IFRS 1. Share-based payment transaction exemption - The Group has applied IFRS 2 only tothose options granted after 7 November 2002 but which had not vested by 1January 2005. Fair value deemed as cost exemption - the Group has used the cost of allproperty, plant and equipment as an approximation for the fair value of theassets. Mandatory Exemption UK GAAP estimates exemption - As there is no evidence that estimates made underUK GAAP at the transition date were in error, estimates under IFRS areconsistent with those original estimates Reconciliations between IFRS and UK GAAP The reconciliations set out below show the effect of the transition from UK GAAPto IFRS. Reconciliations for Equity have been provided as at the following dates: 1 January 2006 30 June 2006 31 December 2006 Reconciliations for Net Income have been provided for the following periods: Six month period ended 30 June 2006 Year ended 31 December 2006 Equity as at 1 January 2006 UK GAAP Notes Effect of IFRS Transition to IFRS £'000 £'000 £'000 --------- ------ ---------- ----------Assets Non current assets Goodwill 8,643 - 8,643Property, plant & equipment 855 - 855Deferred tax assets - (a) 339 339 --------- ------ ---------- ---------- 9,498 339 9,837 --------- ------ ---------- ---------- Current Assets Inventories 33 - 33Trade and other receivables 4,753 (a) (339) 4,414Cash and cash equivalents 60 - 60 --------- ------ ---------- ---------- 4,846 (339) 4,507 --------- ------ ---------- ---------- Liabilities Current liabilities Financial liabilities- borrowings (1,139) - (1,139) Trade and otherpayables (6,545) (i) 400 (6,145) Provisions - (i) (400) (400) Current tax liabilities (65) - (65) ----------- ------ ---------- ---------- (7,749) - (7,749) ----------- ------ ---------- ---------- ----------- ------ ---------- ----------Net current liabilities (2,903) - (3,242) ----------- ------ ---------- ---------- Non current liabilities Bank loan (1,654) - (1,654)Loan stock (1,000) - (1,000)Finance leases (5) - (5)Trade and other payables (1,830) (i) 1,830 -Provisions (113) (i) (1,830) (1,943) ----------- ------ ---------- ---------- (4,602) - (4,602) ----------- ------ ---------- ---------- ----------- ------ ---------- ----------Net Assets 1,993 - 1,993 ----------- ------ ---------- ---------- Shareholders' equity Ordinary share capital 296 - 296 Other reserves 2,826 - 2,826 Retained earnings (1,129) - (1,129) --------- ------ ---------- ----------Total shareholders' equity 1,993 - 1,993 --------- ------ ---------- ---------- Equity as at 30 June 2006 UK GAAP Notes Effect of IFRS Transition to IFRS £'000 £'000 £'000 --------- ------- ---------- ----------Assets Non current assets Goodwill 8,411 (b) 232 8,643Property, plant & equipment 838 - 838Deferred tax assets - (c), (d) 829 829 --------- ------- ---------- ---------- 9,249 1,061 10,310 --------- ------- ---------- ---------- Current Assets Inventories 137 - 137Trade and other receivables 6,068 (d) (339) 5,729Cash and cashequivalents 1,101 - 1,101 --------- ------- ---------- ---------- 7,306 (339) 6,967 --------- ------- ---------- ---------- Liabilities Current liabilities Trade and other payables (7,869) (i) 1,830 (6,039)Provisions - (i) (1,830) (1,830)Current tax liabilities (210) - (210) --------- ------- ---------- ---------- (8,079) - (8,079) --------- ------- ---------- ---------- --------- ------- ---------- ----------Net currentliabilities (773) - (1,112) --------- ------- ---------- ---------- Non current liabilities Provisions (31) - (31) --------- ------- ---------- ---------- (31) - (31) --------- ------- ---------- ---------- --------- ------- ---------- ----------Net Assets 8,445 722 9,167 --------- ------- ---------- ---------- Shareholders' equity Ordinary share capital 477 - 477 Share premium 5,763 - 5,763 Other reserves 2,826 - 2,826 Retained earnings (621) (b,c) 722 101 ------- ------- ---------- ----------Total shareholders' equity 8,445 722 9,167 ------- ------- ---------- ---------- Equity as at 31 December 2006 UK GAAP Notes Effect of IFRS Transition to IFRS £'000 £'000 £'000 --------- ------- ---------- ----------Assets Non current assets Goodwill 10,984 (e) 467 11,451Property, plant &equipment 856 - 856Deferred income tax assets - (f), (g) 610 610 --------- ------- ---------- ---------- 11,840 1,077 12,917 --------- ------- ---------- ---------- Current Assets Inventories 95 - 95Trade and otherreceivables 6,112 (g) (255) 5,857Cash and cashequivalents 1,274 - 1,274 --------- ------- ---------- ---------- 7,481 (255) 7,226 --------- ------- ---------- ---------- Liabilities Current liabilities Financial liabilities- borrowings (379) - (379)Trade and other payables (7,039) (i) 1,465 (5,574)Provisions - (i) (1,465) (1,465)Current tax liabilities (500) - (500) --------- ------- ---------- ---------- (7,918) - (7,918) --------- ------- ---------- ---------- --------- ------- ---------- ----------Net current liabilities (437) - (692) --------- ------- ---------- ---------- Non current liabilities Trade and other payables (1,250) (i) 1,250 -Provisions - (i) (1,250) (1,250) --------- ------- ---------- ---------- (1,250) - (1,250) --------- ------- ---------- ---------- --------- ------- ---------- ----------Net Assets 10,153 822 10,975 --------- ------- ---------- ---------- Shareholders' equity Ordinary share capital 510 - 510 Share premium 6,433 - 6,433 Other reserves 2,826 - 2,826 Retained earnings 384 (e, f) 822 1,206 --------- ------- ---------- ----------Total shareholders'equity 10,153 822 10,975 --------- ------- ---------- ---------- Income statement as at Notes UK GAAP Effect of IFRS30 June 2006 Transition to IFRS £'000 £'000 £'000 ----------- ----------- ----------- Revenue 16,252 - 16,252Cost of sales (9,801) - (9,801) ----------- ----------- -----------Gross profit 6,451 - 6,451 Net operating expenses (b) (5,586) 232 (5,354) ----------- ----------- -----------Operating profit 865 232 1,097 Interest payable andother similar charges (115) - (115)Interest receivable 17 - 17 ----------- ----------- -----------Profit before taxation 767 232 999 ----------- ----------- -----------Taxation (254) - (254) ----------- ----------- -----------Profit for the periodattributable to equityshareholders 513 232 745 ----------- ----------- ----------- Income statement as at Notes UK GAAP Effect of IFRS Transition to IFRS31 December 2006 £'000 £'000 £'000 ----------- ----------- ----------- Revenue 33,147 - 33,147Cost of sales (19,576) - (19,576) ----------- ----------- -----------Gross profit 13,571 - 13,571 Net operating expenses (e) (11,584) 467 (11,117) ----------- ----------- -----------Operating profit 1,987 467 2,454 Interest payable andother similar charges (130) - (130)Interest receivable 53 - 53 ----------- ----------- -----------Profit before taxation 1,910 467 2,377 ----------- ----------- -----------Taxation (h) (400) (182) (582) ----------- ----------- -----------Profit for the periodattributable to equityshareholders 1,510 285 1,795 ----------- ----------- ----------- Explanation of the effect of transition to IFRS (a) Reclassification of deferred tax asset from trade and other receivables tonon current assets, £339k. (b) Reversal of goodwill amortisation calculated under UK GAAP but no longerrequired under IFRS, £232k. (c) Recognition of deferred tax asset on future tax benefit of share options notyet exercised, £490k. (d) Reclassification of deferred tax asset from trade and other receivables tonon current assets, £339k. (e) Reversal of goodwill amortisation calculated under UK GAAP but no longerrequired under IFRS, £467k. (f) Recognition of deferred tax asset on future tax benefit of share options notyet exercised, £355k. (g) Reclassification of deferred tax asset from trade and other receivables tonon current assets, £255k. (h) Tax saving on share options exercised in the period, now shown as a movementin equity in accordance with IAS 12, £182k. (i) Reclassification of deferred consideration payable from Trade and otherpayables to Provisions. Changes to the cash flow statement The company cash flow statement prepared under IFRS presents substantially thesame information as required under UK GAAP. Under IFRS only three categories of cash flow activity are required to bereported; operating, investing and financing. There are no material differencesbetween the cash flow statement presented under IFRS and the cash flow statementunder UK GAAP. 13. Interim Report A copy of the interim report will be circulated to all registered shareholders of the Company and copies will be available for members of the public upon application to the Registered Office at Safron House, 6 - 10 Kirby Street, London EC1N 8EQ or on the Company's website at www.workgroup.plc.uk This information is provided by RNS The company news service from the London Stock Exchange