Date: 26 June 2009
On Behalf of: Hexagon Human Capital plc ("the Group" or "the Company")
Embargoed until: 0700hrs
HEXAGON HUMAN CAPITAL PLC
Preliminary Results for the year ended 31 March 2009
Hexagon Human Capital Plc (AIM: HHC), the UK's leading provider of senior interim management and one of the UK's leading executive search businesses, announces its unaudited preliminary results for the year ended 31 March 2009.
Financial and Operational Highlights:
Robert Walker, Chairman of Hexagon Human Capital Plc, commented:
"The year to 31 March 2009 was one of further progress for Hexagon. Management focus during this year particularly in the second half has been on cost control, cash generation and on reducing the Group's bank and other indebtedness rather than on acquisition initiatives. Acquisition activity in the year was limited to a number of infill acquisitions to support the Group's international presence.
Trading in the first quarter of the current financial year remains volatile. The board has continued its programme of cost reduction to protect the business from the effects of the global recession in what will continue to be a challenging year."
For further information, please contact:
Hexagon Human Capital Plc
Jonathan Wright, Chief Executive Officer
Carl Thompson, Chief Financial Officer 020 7337 1133
Brewin Dolphin Investment Banking (Nomad)
Matt Davis
Alison Barrow 0845 270 8605
Redleaf Communications hexagon@redleafpr.com
Emma Kane/ Sanna Sumner/ Rebecca Sanders-Hewett 020 7566 6700
Notes to Editors:
Hexagon Human Capital is the market-leader in providing senior interim management and is a leading executive search company;
The Group floated on AIM on February 2007;
Hexagon has built up a portfolio of profitable companies operating in a variety of sectors:
The Group's report and accounts for the year ended 31 March 2009 are expected to be posted to shareholders on or around 24 August 2009 and will also be available from the Company's head office at 33 Cornhill, London EC3V 3ND and will be available to download from its website at: www.hexagongroup.com
CHAIRMAN'S STATEMENT
Introduction
On behalf of the board of Hexagon Human Capital Plc I am pleased to report another year of progress for the Group in volatile market conditions.
Results
We have successfully grown both our senior interim management and executive search divisions in the year and are pleased to be able to report overall growth of NFI by 15% to £22.5m and growth in EBITA of 4% to £5.9m. The second half of the year proved to be more challenging and management has focused on reducing costs within the business and maximising cross selling opportunities. Acquisition activity has been purposely limited to infill businesses that enhance the Group's international capabilities.
Dividend
The board recommends no dividend is paid at this time. The position will be reviewed again based on results for the year ending 31 March 2010.
Unsolicited bid
In February 2009 the Group received an unsolicited approach from a third party which in the board's opinion not only undervalued the Company but was also conditional on raising equity and bank leverage. The board accordingly rejected this proposal. Whilst this approach and continued interest from other parties in various of parts of the Group underscores the valuable nature of Hexagon's core assets the board does not believe that it is in shareholders interests to look to sell businesses at current valuations. Nor is the Company under any pressure to do so.
Bank support
In April 2009 the company secured a revised debt facility from Barclays Bank Plc, more detail is included in the Chief Executive's Review. We have agreed with our bankers an increased availability under our current facilities; this is ahead of the conclusion of discussions by end July 2009 on extended facilities. The fact that the bank continues to work alongside us in these difficult times is testament to the underlying quality of the business.
Current Trading and Outlook
The current financial year has started slowly which has led the board to reassess its expectations of future trading levels, accordingly a further restructuring of our cost base has taken place designed to ensure that the Group continues to weather the impact of the global recession in what is likely to be a challenging year.
Robert Walker
Chairman
25 June 2009
CHIEF EXECUTIVE'S REVIEW
Introduction
Hexagon has performed solidly during the year in increasingly difficult market conditions. Following a strong first half where we achieved good growth in NFI and EBIT, the second half performance was impacted by a significantly harder trading climate. The board believes that our full year result of EBITA of £5.9m and NFI to EBITA conversion of 26% (2008: 29%) compares favourably with our peer group companies and is testament to the Group's prudent management.
We have remained focused on our core strategy of building a leading senior interim management business supported by a portfolio of specialist executive search businesses. During the year we traded with over 300 clients including 25 of the FTSE 100. Consistent with our stated strategy of developing incremental business by managing our two divisions to work more cooperatively an increasing number of our clients are now shared between the divisions.
The board started to see the effects of more difficult trading conditions in December 2008 and as a consequence decisive action, as detailed later in this report, has been taken to reduce the Company's cost base and restructure its debt service and deferred consideration obligations.
Business Review
Senior Interim Management
Hexagon is the UK's leading provider of senior interim managers through its two brands BIE and Archer Mathieson. Although growth in the period proved challenging our senior interim business proved relatively resilient to current market pressures with NFI of £8.5m (2008: £7.8m). NFI production per consultant remained strong at £500,000 (2008: £520,000) and we converted NFI to operating profit at 46% (2008: 50%).
During the year the founders of BIE retired from the business, accordingly this strong performance was delivered by the next generation of management, which augers well for future periods.
The year saw changes to the skills required by our clients with a clear focus on more financially orientated interims capable of managing businesses in distressed situations. Although overall demand for interim managers has declined our margins have been increasing since January 2009, reflecting a greater requirement for more senior interim managers in the challenging economic environment.
Executive Search
Our executive search businesses enjoyed an outstanding first half to the year, which set the platform to grow NFI by 19% for the full year. Organic growth was supported by the acquisitions of Correlate Search (formerly Akamai) and The Winchester Group. Our senior search brand Oxygen continued to penetrate its FTSE 100 and 250 client base and through the acquisition of the Winchester Group in Atlanta (see below) has been able to support its key clients in their two most important markets.
Although all areas of the market have seen falling demand for executives our strategy of having a broad portfolio of specialist brands has proved valuable. In particular our market leading pharmaceutical and healthcare business Euromedica has seen consistent demand from its clients and it is important to note that more than 80% of its business has been transacted with organisations based in Continental Europe. It is disappointing to report that during the year members of the founding management team of Roberts & Corr unexpectedly left the business. This inevitably impacted the performance of this business and was the key driver for the merger of Roberts & Corr with Correlate Search mentioned below.
Overall NFI production fell from £370,000 per consultant to just over £300,000 in the year and we converted NFI to operating profit at 14% (2008: 15%).
Acquisitions
During the year acquisition activity was purposely limited with the Group acquiring the Winchester Group in Atlanta USA and Correlate Search in the UK and the Middle East.
The acquisition of the Winchester Group, which has been re-branded Oxygen, was part of Oxygen's strategic development and enables them to remain as a key supplier to a number of large FTSE clients who demand coverage in the USA from their executive search providers.
We reported in our interim results that we had worked on the acquisition of a major European interim management provider but were forced to abort negotiations in September 2008 after a strengthening in the Euro, tightening of the debt markets and reduction in our share price. This required us to write off advisors fees of £0.5m.
During the year the board's focus has been on effective management of its existing businesses and whilst introductions to interesting acquisition opportunities have continued we do not believe the current climate is appropriate for the group to utilise cash resources to make further acquisitions. This will remain under review.
Restructuring Programme
The impact of the global economic slow down began to impact the Group materially in the final quarter of the financial year and the board has accordingly reassessed their expectations of likely trading levels for the current financial year. The board has taken the following actions which it believes will allow it to successfully weather a continuing weak trading environment:
Restructuring of Bank debt
Towards the end of the third quarter of financial year the board produced proposals to enhance the Company's cash position. This pro-active action would assist the Group in its ability to trade through a prolonged downturn whilst meeting its deferred consideration and bank indebtedness repayment obligations. However, the board became aware that certain shareholder groups, which by virtue of the size of their shareholding would be able to block a non pre-emptive issue of fresh equity, were unwilling to support an equity fundraising and did not want to be diluted by other investors. Accordingly, the board was forced to look at alternative options.
Following a shareholder vote at an extraordinary general meeting on 5 March 2009 the Company was successful in securing revised banking facilities. Under these new banking facilities maturing in December 2011 Barclays Bank has the option of converting £2.3m of senior debt into equity at a price of 48p. Since this time given current market conditions and pressure on working capital the Company has agreed with its bankers an increased availability under its current facilities. This is ahead of the conclusion of discussions by 31 July 2009 on extended facilities.
Costs savings
Through recent initiatives taken, both pre and post the end of the financial year, the board has made cost savings of over £1.7m on an annualised basis. Key features of the cost reduction programme include:
A headcount reduction across the Group of approximately 15% of the workforce, saving £700,000.
Salary reductions agreed with senior executives in excess of £800,000
An office consolidation exercise to reduce rent and property service costs by £150,000
The cessation of all discretionary expenditure
A reorganisation of senior management responsibilities to ensure that with the exception of our central finance function all senior executives are in business producing roles
The beneficial effects of this programme have been progressive but from July 2009 onwards we expect the full impact of these savings to be seen in our results.
Deferred Consideration Payments
In June 2008, the board entered into negotiations with the vendors of BIE to restructure future deferred consideration obligations. These negotiations were successfully concluded resulting in a reduction of the outstanding deferred consideration liability by £1.6m. Importantly this will result in the Company avoiding a cash outflow of £0.8m in the current financial year. In addition, as a consequence of the founders of Roberts & Corr leaving the business deferred consideration obligations were reduced by a further £1.8m avoiding a cash outflow of £0.9m in the current financial year (based on the deferred consideration accrued at 31 March 2008).
Management Team and Company Structure
We have continued to follow our founding principles of shared ownership and empowered management and building our Group around a portfolio of specialist brands. During the year we have merged two of our executive search businesses - Roberts & Corr and Correlate Search - under the Correlate brand.
We have taken the opportunity to enhance our leadership team and one of our most senior operational managers Ian Lloyd has taken on broader general management responsibilities across the Group.
In addition to the appointment of Ian we have taken the decision during the first quarter of the current year to make changes to the management of some of our businesses to ensure that all senior executives have direct responsibility for developing revenues and are accountable for business performance.
Financial management of our operating companies remains with our central financial management team under the direction of the CFO. During the year we have further developed the quality of operational reporting and we have good visibility of all key performance metrics.
Current Trading and Prospects
The final quarter of the financial year produced volatile trading however monthly performance has been steadily improving in the first quarter of the current year which gives us confidence that demand is stabilising.
We expect trading conditions to remain difficult for the rest of the current year and as a result the board has adjusted its expectations regarding trading levels for the remainder of the current financial year. Our predictions are that we will see some recovery in the second half of the current year but demand will remain below that of the first half of last year. Consequently a goodwill impairment review has led to us writing down the carrying value of goodwill by £7.1m to reflect more accurately the value of our assets in the current market.
Performance Improvement
The Group's current consulting workforce is now amongst the most experienced in the industry. In the current climate the average NFI run rate is £370,000 per year. When measured against the same run rate 12 months ago this shows we have approximately £3.4m of surplus NFI capacity, which illustrates the short term potential of the business when the market improves.
Since a low point in November 2008 our interim daily margins will have improved by 10% by the end of the first quarter of the current financial year.
The final two months of the first quarter of the current year has seen improved volumes of retained executive search work; the best performance since November 2008.
Our management team are fully focused on increasing sales activity within all our divisions and through a consistent initiative to explore cross selling opportunities within our major clients. Our position of supplying leadership talent, and in particular our leading position in the senior interim management market, has insulated us from the worst of the economic downturn. We are confident that the quality of our brands and our people will enable Hexagon to continue to outperform its peers.
Group Strategy
Despite the current difficult trading conditions we believe that the Group is well placed to benefit from a recovery in the market. Our consultant productivity levels remain amongst the highest in the sector and our ability to convert NFI to EBITA at premium levels will in the board's opinion see us build market share once our clients become confident about economic recovery.
We remain committed to our prime objective of developing Europe's leading senior interim management company supported by a portfolio of high quality specialist Executive Search businesses. We expect to deliver organic growth as well as value enhancing acquisitions to achieve this once we have a supportive trading market.
Jonathan Wright
Chief Executive Officer
25 June 2009
FINANCIAL REVIEW
Unaudited results for the year to March 2009
In the year to March 2009 we grew Net Fee Income (NFI) by 15% to £22.5m and Earnings Before Interest, Tax and Amortisation (EBITA) by 4% to £5.9m, a conversion rate of 26%. In the year our executive search business grew NFI by 19% to £14.0m and our interim management business grew NFI by 9% to £8.5m.
In the year our operating cost base grew by £2.9m from £13.8m to £16.7m, primarily as a result of acquiring the Correlate team, whose total costs in the year were £2.7m. Central management and administration costs were held at £1.1m as last year.
Year to March | 2009 | 2008 | Growth |
Net Fee Income | £m | £m | |
Interim Management | 8.5 | 7.8 | 9% |
Executive Search | 14.0 | 11.7 | 19% |
Total | 22.5 | 19.5 | 15% |
EBITA | |||
Interim Management | 4.0 | 3.9 | 3% |
Executive Search | 1.9 | 1.8 | 6% |
Total | 5.9 | 5.7 | 4% |
The impact of acquisitions in the year was to add the following:
£m NFI EBITA
Correlate Search (formerly Akamai) 2.9 0.2
Oxygen Inc (formerly Winchester) 0.3 (0.1)
Total 3.2 0.1
Organic NFI was therefore £19.4m with 9% growth in interim management and an 8% decline in executive search. Organic EBITA growth was 2% coming entirely from interim management.
EBITA of £5.9m is before the following non-operating charges:
Amortisation of intangibles
Ongoing charge £1.1m (2008: £1.5m)
Additional impairment charge £7.1m (2008: nil)
Advisors' costs in respect of an aborted acquisition £0.5m (2008: nil)
Share based payments charge £0.1m (2008: £0.1m)
Total non-operating charges £8.8m (2008: £1.6m)
These largely non cash costs ultimately reduced the operating result for the year to a loss of £2.9m (2008: profit of £4.1m). Without the additional impairment charge the operating result would have been a profit of £4.1m in line with last year.
Net finance costs rose by £0.4m in the year to £1.7m and included:
Net cost of bank interest to the Group of £0.8m (2008: £0.6m), being the net interest arising on the net cash/debt in the Group during the year. It should be noted that in April 2007, we took out an interest rate swap to protect against the impact of any increases in interest rates
Other finance charges of £0.9m (2008: £0.6m)
The loss before tax (after the amortisation and goodwill impairment charges totalling £8.1m) was £4.6m (2008: profit before tax £2.9m). Ordinarily a £4.6m loss from ordinary activities would result in a tax credit of £1.3m (based on a notional 28% tax rate) but the impact of non-deductible charges (including amortisation, goodwill impairment and finance charges relating to deferred consideration) a tax charge of £0.9m.
Basic earnings per share were (30.30p) (2008: 9.79p) and was 19.04p (2008: 19.42p) after adjusting for amortisation net of tax, impairment, non operating costs and finance charges on deferred consideration. Adjusted fully diluted earnings per share (after tax but before amortisation, impairment, non operating costs and finance charges on deferred consideration) were 18.26p (2008: 18.6p).
Reported Balance Sheet at March 2009
Intangible Assets
Intangible fixed assets, £31.8m (2008: £41.3m) represents the cost of goodwill and intangibles (net of amortisation charges) on acquisitions to date. Under IFRS the intangibles are being amortised as follows:
Brands indefinite life Order book 12 months
Customer contracts 6 years Computer software 3 years
Intangible assets have reduced by £9.5m as follows:
amortisation charge £1.1m ; being the normal write down of intangibles based on the useful lives defined above, plus
impairment charges to the goodwill arising on the acquisition on the following businesses:
Roberts & Corr Ltd £2.6m
BIE Interim Executive Ltd £2.4m
Archer Mathieson Ltd £1.8m
The Winchester Group £0.3m
Total impairment charge £7.1m, plus
the release of £3.4m deferred consideration provisions originally due over the next two years but no longer payable after the departure of the vendors of BIE and Roberts & Corr. The liability to deferred consideration has reduced to £4.2m discounted to take into account the timing of payments (2008: £13.4m) with the potential payments still subject to EBIT performance, less
Intangible assets arising on the acquisitions of Correlate Search and the Winchester Group, £2.1m
Other Assets and Liabilities
Current assets reduced to £6.1m (2008: £12.6m) primarily due to the use of £4.7m cash to fund deferred consideration obligations. In addition, the consolidated outstanding gross receivables from clients totalled £4.0m (2008: £5.6m) representing 41 days sales outstanding (2008: 48 days). This is a major improvement year on year after a significant focus on cash collections.
Total liabilities reduced to £25.0m (2008: £38.0m) primarily after the reduction of deferred consideration obligations by £9.2m.
Net Debt and Cash Flow
At 31 March 2009, with Barclays Bank plc we had an £0.7m overdraft (2008: cash £4.2m) and term loans of £8.7m (2008: £10m) therefore net debt of £9.4m (2008: £5.8m). The increased debt is largely due to the payments of deferred consideration on Archer Mathieson, BIE and Roberts & Corr, totalling £4.7m.
Cash absorbed in the year was £5.0m (2008: absorbed £6.6m). Operating cash generated was £3.1m (2008: £3.9m) with non-operating cash absorbed of £8.1m (2008: absorbed £10.5m),
£0.7m of funds generated were spent on acquisitions (net of cash acquired) (2008: £5.4m) and £0.2m (2008: £0.1m) on capital expenditure. Tax payments were £0.2m (2008: payment £0.1m).
In April 2009, given the uncertain trading climate and the desire to conserve cash in the forthcoming year, we agreed the switch up to £2.3m of our term loan into a convertible loan (according to the terms published on 17 February 2009) enabling the company to benefit from a £2.3m reduction in loan repayments in the year to March 2010 and giving the Bank the option to convert £2.3m debt into equity in the period to December 2011.
Additionally given current market conditions and pressure on cash flow we are in discussions with Barclays regarding the extension of our short term working capital facilities to ensure we have adequate headroom to successfully trade through this challenging period.
Carl Thompson
Chief Financial Officer
25 June 2009
Unaudited Consolidated Income Statement | ||||
for the year ended 31 March 2009 | ||||
Year ended | Year ended | |||
31 March 2009 | 31 March 2008 | |||
£'000 | £'000 | |||
Revenue | 35,073 | 28,664 | ||
Cost of sales | (12,540) | (9,176) | ||
Net Fee Income | 22,533 | 19,488 | ||
Administrative expenses | (25,469) | (15,361) | ||
Operating (loss)/profit | (2,936) | 4,127 | ||
Analysed as: |
|
|
| |
Earnings before interest, tax, impairment and amortisation | 5,860 |
| 5,745 | |
Impairment | (7,050) | - | ||
Amortisation |
| (1,089) |
| (1,545) |
Abortive acquisition costs | (544) | - | ||
Equity-settled share-based payments |
| (113) |
| (73) |
|
| (2,936) |
| 4,127 |
Finance costs | (1,707) | (1,462) | ||
Finance income | 8 | 207 | ||
(Loss)/profit before tax | (4,635) | 2,872 | ||
Income tax expense | (932) | (998) | ||
(Loss)/(profit) after taxation | (5,567) | 1,874 | ||
Attributable to: | ||||
Equity holders of the parent | (5,559) | 1,794 | ||
Minority interests | (8) | 80 | ||
(5,567) | 1,874 | |||
Earnings per share | ||||
Basic (pence) | (30.30) | 9.79 | ||
Diluted (pence) | (30.30) | 9.36 | ||
Adjusted earnings per share* | 19.04 | 19.42 | ||
Adjusted diluted earnings per share* | 18.26 | 18.56 | ||
*Adjusted earnings per share are before the effect of amortisation of other intangible assets (net of deferred tax), impairment and finance charges on deferred consideration. | ||||
All amounts relate to continuing activities | ||||
Consolidated Statement of Changes in Equity | ||||||||||||
as at 31 March 2009 | ||||||||||||
Called up share capital | Share premium | Merger reserve | Share incentive plan | Equity reserve | Foreign exchange reserve | Retained earnings | Attributable to equity holders of the parent | Minority interests | Total equity | |||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
Balance at 1 April 2007 | 246 | 9,392 | 5,171 | - | 147 | (1) | (357) | 14,598 | 48 | 14,646 | ||
Exchange differences on translation of foreign operations | - | - | - | - | - | 6 | - | 6 | - | 6 | ||
Income tax on items taken directly to equity | - | - | - | - | (45) | - | - | (45) | - | (45) | ||
Net income recognised directly in equity | - | - | - | - | (45) | 6 | - | (39) | - | (39) | ||
Profit for the year ended 31 March 2008 | - | - | - | - | - | - | 1,794 | 1,794 | 80 | 1,874 | ||
Total recognised income/(expense) for the period | - | - | - | - | (45) | 6 | 1,794 | 1,755 | 80 | 1,835 | ||
Shares issued in the period | 2 | 298 | - | - | - | - | - | 300 | - | 300 | ||
Equity-settled share-based payments credit | - | - | - | - | - | - | 73 | 73 | - | 73 | ||
Balance at 31 March 2008 | 248 | 9,690 | 5,171 | - | 102 | 5 | 1,510 | 16,726 | 128 | 16,854 | ||
Exchange differences on translation of foreign operations | - | - | - | - | - | 53 | - | 53 | - | 53 | ||
Income tax on items taken directly to equity | - | - | - | - | (68) | - | - | (68) | - | (68) | ||
Net income recognised directly in equity | - | - | - | - | (68) | 53 | - | (15) | - | (15) | ||
Loss for the year ended 31 March 2009 | - | - | - | - | - | - | (5,559) | (5,559) | (8) | (5,567) | ||
Total recognised (expense)/income for the period | - | - | - | - | (68) | 53 | (5,559) | (5,574) | (8) | (5,582) | ||
Shares issued in the period | 31 | 2,039 | - | - | - | - | - | 2,070 | - | 2,070 | ||
Purchase of minority interest | - | - | - | - | - | - | - | - | (128) | (128) | ||
Share incentive plan shares | - | - | - | (28) | - | - | - | (28) | - | (28) | ||
Equity-settled share-based payments credit | - | - | - | - | - | - | 113 | 113 | - | 113 | ||
Balance at 31 March 2009 | 279 | 11,729 | 5,171 | (28) | 34 | 58 | (3,936) | 13,307 | (8) | 13,299 | ||
Unaudited Consolidated Balance Sheet | |||
as at 31 March 2009 | |||
31 March | 31 March | ||
2009 | 2008 | ||
£'000 | £'000 | ||
ASSETS | |||
Non-current assets | |||
Goodwill | 24,058 | 32,206 | |
Other intangible assets | 7,708 | 9,072 | |
Property, plant and equipment | 467 | 380 | |
Held-to-maturity investments | 3 | 3 | |
Deferred tax asset | 34 | 658 | |
32,270 | 42,319 | ||
Current assets | |||
Trade receivables | 3,998 | 5,639 | |
Prepayments and accrued income | 2,116 | 2,763 | |
Cash and cash equivalents | - | 4,223 | |
6,114 | 12,625 | ||
| |||
Total assets | 38,384 | 54,944 | |
LIABILITIES | |||
Non-current liabilities | |||
Borrowings | (6,051) | (7,811) | |
Deferred consideration on acquisitions | (2,818) | (8,372) | |
Other payables | - | (1,246) | |
Derivative financial instruments | (141) | (62) | |
Deferred tax liabilities | (2,153) | (2,535) | |
(11,163) | (20,026) | ||
Current liabilities | |||
Bank overdraft | (760) | - | |
Trade and other payables | (6,438) | (8,857) | |
Deferred consideration on acquisitions | (1,405) | (5,030) | |
Borrowings | (2,644) | (2,189) | |
Current tax payable | (2,675) | (1,988) | |
(13,922) | (18,064) | ||
Total liabilities | (25,085) | (38,090) | |
Net Assets | 13,299 | 16,854 | |
EQUITY | |||
Issued capital | 279 | 248 | |
Share premium | 11,729 | 9,690 | |
Merger reserve | 5,171 | 5,171 | |
Share incentive plan reserve | (28) | - | |
Equity reserve | 34 | 102 | |
Foreign exchange reserve | 58 | 5 | |
Retained earnings | (3,936) | 1,510 | |
Capital and reserves attributable to equity holders of the parent | 13,307 | 16,726 | |
Minority interests | (8) | 128 | |
Total equity | 13,299 | 16,854 |
Unaudited Consolidated Cash Flow statement | |||
for the year ended 31 March 2009 | |||
Year ended | Year ended | ||
31 March | 31 March | ||
2009 | 2008 | ||
£'000 | £'000 | ||
Cash flows from operating activities | |||
(Loss)/profit before taxation | (4,635) | 2,872 | |
Adjustments for: | |||
Depreciation and amortisation | 1,260 | 1,661 | |
Impairment | 7,050 | - | |
Equity-settled share-based payments | 113 | 73 | |
Finance income | (8) | (207) | |
Finance expense | 1,707 | 1,462 | |
Operating profit before working capital and provision changes | 5,487 | 5,861 | |
Decrease/(increase) in trade and other receivables | 3,123 | (1,254) | |
Decrease in trade and other payables | (5,283) | (580) | |
Cash generated from operating activities | 3,327 | 4,027 | |
Income tax paid | (210) | (132) | |
Net cash flows from operating activities | 3,117 | 3,895 | |
Cash flows from investing activities | |||
Purchase of property, plant and equipment | (224) | (141) | |
Purchase of intangible assets | - | (14) | |
Purchase of subsidiary undertakings (net of cash) | (715) | (5,362) | |
Purchase of minority interest | (128) | - | |
Payment of deferred consideration | (4,687) | (3,755) | |
Interest received | 8 | 207 | |
Net cash flows used in investing activities | (5,746) | (9,065) | |
Cash flows from financing activities | |||
Interest paid | (1,049) | (742) | |
Repayment of borrowings | (2,281) | (3,753) | |
Proceeds from borrowings | 976 | 3,089 | |
Net cash flows (used in)/from financing activities | (2,354) | (1,406) | |
Net increase in cash and cash equivalents | (4,983) | (6,576) | |
Net foreign exchange difference | - | 13 | |
Cash and cash equivalents at the beginning of the period | 4,223 | 10,786 | |
Cash and cash equivalents at the end of the period | (760) | 4,223 |
Notes to the Financial Statements
for the year ended 31 March 2009
1 Significant accounting policies
Basis of preparation
Hexagon Human Capital plc is a public limited company incorporated and domiciled in the United Kingdom and listed on the AIM market.
The preliminary announcement does not constitute the Group's statutory financial statements within the meaning of S.434 of the Companies Act 2006. The financial information included in this announcement has been extracted from the un-audited financial statements for the year ended 31st March 2009 and the published financial statements for the year ended 31st March 2008.
The financial information contained within this preliminary report have been prepared using accounting policies consistent with those of the financial statements for the year ended 31 March 2008, which are based on the recognition and measurement principles of IFRS as adopted by the European Union.
The consolidated financial statements have been prepared on a historical cost basis except for derivative financial instruments that have been measured at fair value. The consolidated financial statements are presented in pounds sterling and all values are rounded to the nearest thousand except when otherwise indicated.
2 Segmental analysis
Interim Management | Executive Search | Group | ||||||||
Year ended | Year ended | Year ended | Year ended | Year ended | Year ended | |||||
31 March | 31 March | 31 March | 31 March | 31 March | 31 March | |||||
2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |||||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||
Revenue | ||||||||||
Ongoing operations | 21,078 | 16,945 | 10,822 | 11,719 | 31,900 | 28,664 | ||||
Acquisitions | - | - | 3,173 | - | 3,173 | - | ||||
Total revenue | 21,078 | 16,945 | 13,995 | 11,719 | 35,073 | 28,664 | ||||
Net fee income | 8,538 | 7,769 | 13,995 | 11,719 | 22,533 | 19,488 | ||||
Result | ||||||||||
Segment result | 3,950 | 3,886 | 1,797 | 1,786 | 5,747 | 5,672 | ||||
Impairment of intangible assets | (4,200) | - | (2,850) | - | (7,050) | - | ||||
Amortisation of intangible assets | (614) | (1,150) | (475) | (395) | (1,089) | (1,545) | ||||
Unallocated expenses | (544) | - | ||||||||
Earnings before interest and tax | (864) | 2,736 | (1,528) | 1,391 | (2,936) | 4,127 | ||||
Net finance costs | (1,699) | (1,255) | ||||||||
(Loss)/profit before tax | (4,635) | 2,872 | ||||||||
Assets and liabilities | ||||||||||
Segment assets | 25,872 | 33,045 | 10,143 | 14,255 | 36,015 | 47,300 | ||||
Unallocated assets | 2,369 | 7,644 | ||||||||
Total assets | 25,872 | 33,045 | 10,143 | 14,255 | 38,384 | 54,944 | ||||
Segment liabilities | (2,516) | (3,576) | (3,606) | (3,496) | (6,122) | (7,072) | ||||
Unallocated liabilities | (18,963) | (31,018) | ||||||||
Total liabilities | (2,516) | (3,576) | (3,606) | (3,496) | (25,085) | (38,090) | ||||
Segment net assets | 23,356 | 29,469 | 6,537 | 10,759 | 29,893 | 40,228 | ||||
Unallocated net assets | (16,594) | (23,374) | ||||||||
Total net assets | 23,356 | 29,469 | 6,537 | 10,759 | 13,299 | 16,854 | ||||
3 Business Combination
Correlate Search In April 2008, the Group purchased the business and assets of Akamai Financial Markets (UK) Ltd and the entire share capital of Akamai Financial Markets Executive Search (Dubai) Ltd (collectively referred to as 'Akamai') from Hat Pin Plc for consideration of £1 each. Deal costs were £113k. The acquired business has been rebranded Correlate Search. Correlate is a specialist provider of executive search services to the international financial services industry and has operations in the UK and in Dubai which provides the Group with an important Middle East base. For the 12 months to December 2007 Akamai had unaudited net fee income of £4.3m and losses before interest and tax of £0.4m. The allocation of the purchase price to the assets and liabilities of Akamai at the date of acquisition are: | ||||
Book | Fair value | Fair | ||
value | adjustments | value | ||
£'000 | £'000 | £'000 | ||
Property, plant and equipment | 4 | - | 4 | |
Intangible assets | - | 176 | 176 | |
Trade and other receivables | 632 | - | 632 | |
Cash and cash equivalents | 299 | - | 299 | |
Total assets | 935 | 176 | 1,111 | |
Trade and other payables | (1,422) | - | (1,422) | |
Deferred tax | - | (49) | (49) | |
Total liabilities | (1,422) | (49) | (1,471) | |
Net assets | (487) | 127 | (360) | |
Goodwill arising on acquisition | 473 | |||
Total consideration | 113 | |||
Satisfied by: | ||||
Cash paid | - | |||
Direct costs relating to the acquisition | 113 | |||
113 | ||||
Net cash outflow arising on acquisition: | ||||
Cash consideration | - | |||
Cash and cash equivalents acquired | (299) | |||
Direct costs relating to the acquisition | 113 | |||
Net cash outflow | (186) | |||
Since the acquisition Akamai has contributed towards the Group £2.9m of net fee income and £0.2m of earnings before interest and tax for the year ended 31 March 2009.
The goodwill that arose from the combination can be attributed to the value of anticipated revenues, and the value of the workforce of Akamai which cannot be recognised as an intangible asset under IAS 38 Intangible assets. | |
The Winchester Group Limited In October 2008, the Group acquired the entire share capital of The Winchester Group Limited for a consideration of £1,504k including deferred consideration of £667k and excluding deal costs of £164k. The Winchester Group Limited is an executive search provider to the real estate, hospitality, telecommunications and pharmaceutical sectors. The allocation of the purchase price to the assets and liabilities of The Winchester Group Limited at the date of acquisition are: | ||||
Book | Fair value | Fair | ||
value | adjustments | value | ||
£'000 | £'000 | £'000 | ||
Property, plant and equipment | 30 | - | 30 | |
Intangible assets | - | 297 | 297 | |
Trade and other receivables | 203 | - | 203 | |
Cash and cash equivalents | 12 | - | 12 | |
Total assets | 245 | 297 | 542 | |
Trade and other payables | (218) | - | (218) | |
Deferred tax | - | (83) | (83) | |
Total liabilities | (218) | (83) | (301) | |
Net assets | 27 | 214 | 241 | |
Goodwill arising on acquisition | 1,427 | |||
Total consideration | 1,668 | |||
Satisfied by: | ||||
Cash paid | 749 | |||
Retention | 88 | |||
Deferred consideration | 667 | |||
Direct costs relating to the acquisition | 164 | |||
1,668 | ||||
Net cash outflow arising on acquisition: | ||||
Cash consideration | 749 | |||
Cash and cash equivalents acquired | (12) | |||
Direct costs relating to the acquisition | 164 | |||
Net cash outflow | 901 | |||
The amount of deferred consideration is variable subject to the performance of The Winchester Group Limited during the trading periods up to 2012. It has been provided for on a discounted basis in creditors at the directors' estimate of the final payments. | |||
Since the acquisition Winchester Group Limited has contributed to the Group £320k of net fee income and a £30k | |||
loss before interest and tax for the year ended 31 March 2009. Had the acquisition occurred on 1 April 2008 | |||
the net fee income for the year ended 31 March 2009 would have been £1,300k and the earnings before interest and | |||
tax for the year would have been £150k. | |||
The goodwill that arose on the combination can be attributed to the value of anticipated future revenues, and the value of the workforce of The Winchester Group Limited which cannot be recognised as an intangible asset under IAS 38 Intangible assets. Deferred consideration will be settled in a mixture of cash and ordinary shares. | |||
4 Earnings per share
Year ended | Year ended | ||
31 March | 31 March | ||
2009 | 2008 | ||
£'000 | £'000 | ||
(Loss)/profit attributable to equity holders of the parent | (5,559) | 1,794 | |
Add back: | |||
Amortisation of other intangible assets net of deferred tax | 784 | 1,105 | |
Finance charges on deferred consideration | 681 | 581 | |
Impairment | 7,050 | - | |
Abortive acquisition costs | 544 | - | |
Minority interest | (8) | 80 | |
Adjusted profit for the year | 3,492 | 3,560 | |
Number | Number | ||
Weighted average number of shares | 18,343,591 | 18,331,782 | |
Dilutive effect of share plans | 775,209 | 844,985 | |
Diluted weighted average number of shares | 19,118,800 | 19,176,767 | |
Pence | Pence | ||
Basic earnings per share | (30.30) | 9.79 | |
Diluted earnings per share | (30.30) | 9.36 | |
Adjusted earnings per share* | 19.04 | 19.42 | |
Adjusted diluted earnings per share* | 18.26 | 18.56 | |
*Adjusted earnings per share are before the effect of amortisation of other intangible assets (net of deferred tax), impairment and finance charges on deferred consideration. | |||
5 Post balance sheet events
In April 2009, the Group transferred £2.3m of its term loan into a convertible loan (according to the terms published on 17 February 2009) enabling the Group to benefit from a £2.3m reduction in loan repayments in the year to March 2010 and giving the Bank the option to convert £2.3m of debt into equity in the period to December 2011.
RNS news service provided by Hemscott Group Limited.