TIDMKLN
RNS Number : 5357I
Kellan Group (The) PLC
20 June 2017
20 June 2017
The Kellan Group PLC
("Kellan", the "Company" or "Group")
Audited Annual Results for the year ended 31 December 2016
Notice of Annual General Meeting
The Company is pleased to announce its annual results for the
year ended 31 December 2016. Kellan is a market leading recruitment
business operating across a wide range of functional disciplines
and industry sectors.
The Annual General Meeting of the Company will be held at the
Company's offices at 4th Floor, 27 Mortimer Street, London, W1T 3BL
at 2pm on 19 July 2017.
Headline figures
-- Full year revenue of GBP21.9 million representing a decrease
of 11.8% (2015: GBP24.9 million).
-- H2 2016 revenue of GBP11.9 million grew by 19.6% compared
with H1 2016 (GBP10 million); while H2 net fee income (NFI) of
GBP3.5 million grew by 3.4% compared to H1 2016 (GBP3.3
million).
-- Full year adjusted EBITDA (note 2) profit of GBP0.77 million
compared to a profit of GBP1.02 million in 2015.
-- Impairment charge (non-cash) against goodwill of GBP2.6 million (2015: nil).
-- Operating profit before impairment of GBP0.4 million compared
with an operating profit of GBP0.8 million in 2015.
-- Net loss (including non-cash impairment charge) of GBP2.5
million compared with a net profit of GBP0.4 million in 2015. 2016
Net profit of GBP0.1 million (excluding non-cash impairment
charge)
-- Continued streamlining with administrative expenses reduced
by 7.2% year-on-year from GBP6.9 million in 2015 to GBP6.4 million.
Excluding the effect of share based payments (2016: nil, 2015;
GBP150,000 favourable adjustment), the like-for-like administrative
expenses have reduced 8.6% from GBP7.0 million to GBP6.4
million.
ENQUIRIES:
The Kellan Group PLC
Rakesh Kirpalani, Group Finance Tel: 020 7268 6200
Director
Allenby Capital Limited
David Worlidge / James Thomas Tel: 020 3328 5656
Executive Chairman's Statement
The results for 2016 have been disappointing, although the Group
has had some success in securing new clients and growing some areas
of the business. Group sales have decreased by 11.8% from GBP24.9
million in 2015 to GBP21.9 million in 2016, while administrative
expenses have reduced by 7.2% from GBP6.9 million in 2015 to GBP6.4
million in 2016. The impairment review undertaken in 2016 resulted
in a GBP2.6 million impairment charge (non-cash) in relation to
Quantica Group (2015: nil). The Quantica Group is significantly
different from the business acquired in 2007, and as such it is not
considered appropriate to retain the GBP2.6 goodwill as an
intangible asset. Including the GBP2.6 million impairment of
goodwill in 2016, the overall loss for 2016 is GBP2.5 million
compared with a profit of GBP0.4 million in 2015. Excluding the
effect of the GBP2.6 million goodwill impairment in 2016 and the
GBP150,000 favourable share-based payment adjustment in 2015,
year-on-year earnings before tax declined from GBP0.4 million in
2015 to GBP0.1 million in 2016. Adjusted EBITDA for 2016 of GBP0.77
million compared with GBP1 million in 2015 is extremely positive as
the Group was able to adapt its cost base effectively to be in line
with its reduced sales performance level.
The 2016 results led me to make a number of senior management
changes and I am really pleased with the positive contribution made
to date by Liam Humphreys and his management team. He has
spearheaded a series of progressive changes within the running of
our three core businesses, starting with change management, staff
training, retention and internal staff recruitment, thus delivering
a more solid deliverable service to our national clients. The
Group's staff turnover rate is substantially better than in
previous years with greater emphasis towards on-boarding processes,
development and detainment. Improvement towards our technology
tools within our varied CRM systems is already starting to show
that time and investment was well spent.
Overall Group performance to date for 2017 is slightly ahead of
Board expectation and I am confident that the changes implemented
will lead the Group to achieve substantially better results in
2017.
The Group has successfully refinanced all its obligations that
were due in February 2017 and September 2017. The debt
restructuring plan improves the Company's balance sheet whilst
substantially reducing ongoing financing costs which will enable
the Company to pursue its organic and acquisitive growth strategy
without further distractions.
The Board thanks Mark Darby for his efforts and contributions to
the Group.
My sincerest thanks go to our staff, all our customers, and to
all our loyal shareholders for their continued support.
Richard Ward
Executive Chairman
19 June 2017
Strategic report
Business Model
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. The Company joined
the AIM market of the London Stock Exchange in December 2004.
A review of the business and a detailed explanation of
performance and key performance indicators is set out below.
Business review
With the UK recruitment market providing good opportunities with
some specialist sectors doing significantly better than others, the
Group has proactively taken the opportunity to ensure it is in the
strongest position possible. Business operations are focussed in
our core markets being Hospitality & Leisure, Technology and
Accounting & Finance. While we also operate in certain other
niche areas, our aim is to continue to develop our core businesses
in major city centres. The diverse brands within the Group de-risk
the overall impact of a potentially inconsistent market, and
despite the overall decline in NFI, we saw some strong performances
within various parts of our business during 2016.
Berkeley Scott's temporary recruitment operation was flat
year-on-year with NFI at GBP3.1 million. NFI in the London office
declined by 12.9% while all other temporary locations delivered
year-on-year growth. Berkeley Scott returned to the Birmingham
market in January 2016 and delivered over 35,000 hours of temporary
assignments in 2016.
NFI from Berkeley Scott's permanent recruitment operation
declined by 19.7% from GBP1.9 million in 2015 to GBP1.5 million in
2016, predominantly due to underperformance from London and Leeds,
however Manchester delivered growth of 11.7% on 2015. The Northern
contract and facilities management sector delivered growth of 23.4%
on 2015 while the South West hospitality market delivered NFI
growth of 74.7% on 2015.
Berkeley Scott's permanent recruitment operation in London
underperformed in 2016, with NFI declining 28.6%, but following a
management restructure is currently delivering increased NFI. In
2016, the London team made continued progress within the executive
chef and hotels markets, with the chefs market NFI increasing 26.5%
on 2015.
The RK Group's Leeds office underperformed in 2016, with NFI
declining 25.3% on 2015. However, growth delivered from other
offices saw overall NFI remain flat year-on-year at GBP1.4 million,
with NFI from RK Preston increasing by 17.7% on 2015. The RK
Commercial Contracts division was closed in Q4 2016, with
year-on-year NFI having declined by 13% to GBP83,000.
The Quantica Group's NFI declined by GBP0.52 million (38.5%)
from GBP1.36 million in 2015 to GBP0.84 million in 2016. GBP0.16
million of this decline relates to the closure of the Birmingham
branch in Q2 2015, with the remaining decline primarily from the
Yorkshire and London branches. Quantica Search and selection has
continued to re-establish relationships with Preferred Supplier
Agreement clients and has also won new business with Dr Oetker,
Dairygold and Kleeneze. Although Quantica Group's NFI reduced
year-on-year, Quantica delivered controllable contribution growth
of GBP96,000.
Financial Review
The Group's revenue for the year ended 31 December 2016 was
GBP21.9 million representing a decrease of 11.8% (2015: GBP24.9
million). This produced NFI of GBP6.8 million for the year ended 31
December 2016, a decrease of 11.9% (2015: GBP7.7 million). 2016
full year adjusted EBITDA was a profit of GBP0.8 million compared
to a profit of GBP1 million in 2015.
Temporary NFI declined by 10.0% from GBP4.1 million in 2015 to
GBP3.7 million in 2016, whilst permanent NFI declined by 14.1% from
GBP3.6 million in 2015 to GBP3.1 million in 2016. The decline in
both temporary and permanent NFI was primarily due to
underperformance from Berkeley Scott London and RK Leeds.
Excluding the GBP2.5 million impairment of goodwill in 2016
(2015: nil), the administrative expenses have decreased to GBP6.4
million in the year ended 31 December 2016, from GBP6.9 million in
2015, which represents a reduction of 7.2% year-on-year. In 2015,
the Group carried out a review of the outstanding options. After
considering the number of options that are expected to vest, a
favourable share based payment adjustment of GBP150,000 was
included in administrative expenses in the 2015 accounts (2016:
nil). Excluding the effect of share based payments (2016: nil;
2015; GBP150,000 favourable adjustment), the like-for-like
administrative expenses have reduced 8.6% from GBP7 million to
GBP6.4 million.
Cashflow
Net cash inflow at an operating level was GBP0.68 million for
the year ended 31 December 2016 (2015: inflow of GBP0.51 million).
Investing activities comprised of capital expenditure of GBP28,000
(2015: GBP161,000). Net cash outflow from financing activities
amounted to GBP450,000 (2015: inflow of GBP167,000) comprising
movement on the invoice discounting facility balances, the
servicing of loan interest, the repayment of GBP732,000 to the loan
note holders and receipt of GBP366,000 of new loans. The net
increase in cash and cash equivalents in the period was GBP202,000
(2015: GBP516,000).
Monitoring, risk and KPIs
Risk management is an important part of the management process
throughout the Group. The composition of the Board is structured to
give balance and expertise when considering governance, financial
and operational recruitment issues. Meetings incorporate, amongst
other agenda items, a review of monthly management accounts,
operational and financial KPIs and major issues and risks facing
the business.
The most important KPIs used in monitoring the business are as
follows:
Year ended Year ended
31 December 31 December
2016 2015
Revenue GBP21,932,000 GBP24,864,000
Net Fee Income GBP6,783,000 GBP7,701,000
Adjusted EBITDA (Note 2) GBP772,000 GBP1,021,000
Adjusted EBITDA as a %
of Net Fee Income 11.38% 13.26%
Days sales outstanding
(DSO) (Note 12) 38 39
Headroom on Confidential GBP1,952,000 GBP1,634,000
Invoice Discounting "CID"
facility
The principal risks faced by the Group in the current economic
climate are considered to be financial, market and people
related:
-- Financial - The main financial risks arising from the Group's
activities are liquidity risk and credit risk. These are monitored
by the Board and are disclosed further in notes 1 and 16 of the
financial statements.
Based on the Group's latest cash flow forecasts and current
trading performance, it is not expected that any further funding
will be required for the foreseeable future. The directors'
consideration of the appropriateness of the going concern basis in
preparing the financial statements is set out in note 1 to the
financial statements.
-- Market - the Group operates in a dynamic market place and
constantly seeks to ensure the solutions it offers to customers are
competitive. By operating in diverse sectors, the Group is, to some
degree, protected from a deteriorating market. The Group is
operating at a near 50/50 mix of temporary and permanent
recruitment fees at NFI level, which de-risks the overall impact of
a potentially inconsistent market.
-- People - In a people intensive business, the resignation of
key individuals (both billing consultants and influential
management) and the potential for them to exit the business taking
clients, candidates and other employees to their new employers is a
risk. Kellan mitigates this risk through a number of methods
including the application of competitive pay structures and share
plans to incentivise retention. In addition the Group's employment
contracts contain restrictive covenants that reduce a leaver's
ability to approach Kellan clients, candidates and employees for
certain periods following the end of their employment with the
Group.
The Strategic Report was approved by order of the Board on 19
June 2017.
Rakesh Kirpalani Richard Ward
Group Finance Director Executive Chairman
19 June 2017
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2016
Year
Year ended ended
31 December 31 December
2016 2015
Note GBP000 GBP000
------------------------------------ ----- ------------ ------------
Revenue 21,932 24,864
Cost of sales (15,149) (17,163)
------------------------------------ ----- ------------ ------------
Gross profit/net fee income 6,783 7,701
Administrative expenses (6,369) (6,877)
------------------------------------ ------------
Operating profit before impairment
charge 414 824
Impairment of goodwill 10 (2,578) -
------------------------------------ ----- ------------ ------------
Operating (loss)/profit 2 (2,164) 824
Finance income - 8
Finance expenses 5 (322) (406)
(Loss)/profit before tax 3 (2,486) 426
Taxation 6 - -
------------------------------------ ----- ------------ ------------
(Loss)/profit for the period (2,486) 426
------------------------------------ ----- ------------ ------------
Attributable to:
Equity holders of the parent (2,486) 426
------------------------------------ ----- ------------ ------------
(Loss)/profit per share in
pence
Basic (0.73) 0.13
Diluted 7 (0.73) 0.11
------------------------------------ ----- ------------ ------------
The above results relate to continuing operations.
There are no other items of comprehensive income for the year or
for the comparative year.
The notes on at the end of this announcement form part of these
financial statements.
Consolidated Statement of Financial Position
As at 31 December 2016
As at As at
31 December 31 December
2016 2015
Note GBP000 GBP000
-------------------------------- ----- ------------ -------------
Non-current assets
Property, plant and equipment 9 290 382
Intangible assets 10 3,335 6,129
3,625 6,511
-------------------------------- ----- ------------ -------------
Current assets
Trade and other receivables 12 4,359 4,415
Cash and cash equivalents 13 1,910 1,708
-------------------------------- ----- ------------ -------------
6,269 6,123
-------------------------------- ----- ------------ -------------
Total assets 9,894 12,634
-------------------------------- ----- ------------ -------------
Current liabilities
Loans and borrowings 14 3,375 2,887
Trade and other payables 15 2,956 3,056
Provisions 18 8 67
-------------------------------- ----- ------------ -------------
6,339 6,010
-------------------------------- ----- ------------ -------------
Non-current liabilities
Loans and borrowings 14 1,881 3,095
Provisions 18 75 42
1,956 3,137
-------------------------------- ----- ------------ -------------
Total liabilities 8,295 9,147
-------------------------------- ----- ------------ -------------
Net assets 1,599 3,487
-------------------------------- ----- ------------ -------------
Equity attributable to
equity holders of the parent
Share capital 19 4,274 4,274
Share premium 20 14,746 14,746
Capital contribution reserve 20 768 -
Convertible debt reserve 20 - 170
Capital redemption reserve 20 2 2
Retained earnings (18,191) (15,705)
-------------------------------- ----- ------------ -------------
Total equity 1,599 3,487
-------------------------------- ----- ------------ -------------
The notes at the end of this announcement form part of these
financial statements.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2016
Share Share Convertible Warrant Capital Capital Retained Total
capital premium reserve reserve redemption contribution earnings Equity
reserve reserve
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance at
1 January
2015 4,274 14,711 164 36 2 - (15,981) 3,206
Total
comprehensive
profit for
the year ended
31 December
2015 - - - - - - 426 426
Share-based
payment - - - - - - (150) (150)
Issue of shares - 35 - - - - - 35
Equity
component
of convertible
loan notes - - 6 (36) - - - (30)
Balance at
31 December
2015 4,274 14,746 170 - 2 - (15,705) 3,487
Total
comprehensive
loss for the
year ended
31 December
2016 - - - - - - (2,486) (2,486)
Share-based - - - - - - - -
payment
adjustment
Issue of shares 19 - - - - - - - -
Capital
contribution - - - - - 768 - 768
Equity
component
of convertible
loan notes 14 - - (170) - - - - (170)
Balance at
31 December
2016 4,274 14,746 - - 2 768 (18,191) 1,599
The notes at the end of this announcement form part of these
financial statements.
Consolidated Statement of Cash Flows
For the year ended 31 December 2016
Year
Note Year ended ended
31 December 31 December
2016 2015
GBP000 GBP000
Cash flows from operating activities
(Loss)/profit for the period (2,486) 426
Adjustments for:
Depreciation and amortisation 335 327
Impairment of goodwill 2,578 -
Interest paid 305 370
Amortisation of loan costs 17 29
Equity settled convertible
loan interest - 7
Equity-settled share-based
payment adjustment - (150)
749 1,009
Decrease/(increase) in trade
and other receivables 56 (560)
(Decrease)/increase in trade
and other payables (101) 108
Increase in provisions (26) (47)
-------------------------------------- ----- ------------ ------------
Net cash inflow/(outflow) from
operating activities 678 510
-------------------------------------- ----- ------------ ------------
Cash flows from investing activities
Acquisition of property, plant
and equipment 9 (28) (161)
-------------------------------------- ----- ------------ ------------
Net cash outflow from investing
activities (28) (161)
-------------------------------------- ----- ------------ ------------
Cash flows from financing activities
Increase of invoice discounting
facility balances 188 458
Interest paid and loan costs (270) (276)
New loan receipt 366 -
Repayment of term loan borrowings (732) (15)
Net cash (outflow)/inflow from
financing activities (448) 167
-------------------------------------- ----- ------------ ------------
Net decrease in cash and cash
equivalents 202 516
Cash and cash equivalents
at the beginning of the period 1,708 1,192
-------------------------------------- ----- ------------ ------------
Cash and cash equivalents at
the end of the period 13 1,910 1,708
-------------------------------------- ----- ------------ ------------
The notes at the end of this announcement form part of the
financial statements.
Notes to the Financial Statements
(forming part of the financial statements)
1 Accounting policies
Basis of preparation
This announcement and the financial information were approved by
the Board on 19 June 2017. The financial information set out in
this announcement does not constitute the Company's statutory
accounts for the years ended 31 December 2016 and 31 December 2015.
Statutory accounts for the years ended 31 December 2016 and 31
December 2015 have been reported on by the Independent Auditors.
The Independent Auditors' Reports on the Annual Report and
Financial Statements for 2015 and 2016 were unqualified and did not
contain a statement under 498(2) or 498(3) of the Companies Act
2006.
Statutory accounts for the year ended 31 December 2015 have been
filed with the Registrar of Companies. The statutory accounts for
the year ended 31 December 2016 will be delivered to the Registrar
in due course.
Going concern
The financial statements have been prepared on
a going concern basis.
Based on the Group's latest trading expectations
and associated cash flow forecasts, the directors
have considered the cash requirements of the
Company and the Group will be able to operate
within its existing facilities for at least the
next twelve months following approval of these
financial statements. These facilities comprise
an invoice discounting facility of up to GBP4
million dependent on trading levels. The Directors
recognise that there is a general sensitivity
to the wider macro-economic environment, however,
based on the ongoing support from major shareholders,
current market outlook 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.
Measurement convention
The financial statements are prepared on the
historical cost basis.
Basis of consolidation
Subsidiaries are entities controlled by the Group.
The Company controls a subsidiary if all three
of the following elements are present; power
over the subsidiary, exposure to variable returns
from the subsidiary, and the ability of the investor
to use its power to affect those variable returns.
The financial statements of subsidiaries are
included in the consolidated financial statements
from the date that control commences until the
date that control ceases.
Property, plant and equipment
Items of property, plant and equipment are measured
at cost less accumulated depreciation and impairment
losses. Depreciation is charged to the income
statement on a straight-line basis over the estimated
useful lives of each part of an item of property,
plant and equipment. Land is not depreciated.
The annual rates used are generally:
-- computer equipment 25%
-- office equipment 10% - 33%
-- leasehold improvements over the duration of the lease
Goodwill
Goodwill represents amounts arising on the acquisition
of subsidiaries. Subject to the transitional
relief in IFRS 1, all business combinations are
accounted for by applying the purchase method.
Impairment tests on goodwill are undertaken annually
at the financial year end. Goodwill represents
the difference between the cost of the acquisition
and the fair value of the net identifiable assets
acquired. Identifiable intangibles are those
which can be sold separately or which arise from
legal or contractual rights regardless of whether
those rights are separable.
Goodwill is stated at cost less any accumulated
impairment losses. Goodwill is allocated to cash-generating
units and is not amortised but is tested annually
for impairment.
Externally acquired intangible assets
Intangible assets are recognised on business
combinations if they are separable from the acquired
entity or give rise to other contractual/legal
rights. The amounts ascribed to such intangibles
are arrived at by using appropriate valuation
techniques.
Amortisation is recognised in profit and loss
on a straight-line basis over the estimated useful
lives of intangible assets, other than goodwill,
from the date that they are available for use.
The significant intangibles recognised by the
Group, their useful economic lives and the methods
used to determine the cost of intangibles acquired
in a business combination are as follows:
Intangible asset Useful economic life Valuation method
Brand name 10 years Relief from royalty method
Customer relations 10 years Means extended excess method
Cash and cash equivalents
Cash and cash equivalents comprise cash balances
on current accounts and call deposits.
Impairment
The carrying values of assets are reviewed at each balance sheet
date to determine whether there is any indication of impairment. If
any such indication exists, the recoverable amount of the asset is
estimated. Where the asset does not generate cash flows which are
independent from other assets, the recoverable amount of the
cash-generating unit to which the asset belongs is estimated.
The recoverable amount of a non-financial asset is the higher of
its fair value less costs to sell, and its value-in-use.
Value-in-use is the present value of the future cash flows expected
to be derived from an asset or cash-generating unit calculated
using a suitable discount factor.
An impairment loss is recognised in the statement of
comprehensive income whenever the carrying amount of an asset or
cash-generating unit exceeds its recoverable amount
Goodwill is tested for impairment annually or whenever there is
an indication that the asset may be impaired. Any impairment
recognised on goodwill is not reversed.
The impairment review is assessed by reference to value in use,
using internal forecasts and estimated growth rates to forecast
future cash flows, and a suitable discount rate based on the
Group's weighted average cost of capital. Any impairment is
recognised immediately in the income statement and is not
subsequently reversed.
Provisions
A provision is recognised in the balance sheet
when the Group has a present legal or constructive
obligation as a result of a past event, and it
is probable that an outflow of economic benefits
will be required to settle the obligation. If
the effect is material, provisions are determined
by discounting the expected future cash flows
at a pre-tax risk-free rate.
Employee benefits
Defined contribution plans
Obligations for contributions to defined contribution
pension plans are recognised as an expense in
the income statement as incurred.
Share-based payment transactions
The grant date fair value of options granted
to employees is recognised as an employee expense,
with a corresponding increase in equity, over
the period in which the employees become unconditionally
entitled to the options. The fair value of the
options granted is measured using the Black Scholes
option valuation model, taking into account the
terms and conditions upon which the options were
granted. The amount recognised as an expense
is adjusted to reflect the actual number of share
options that vest, except where forfeiture is
due only to share prices not achieving market
vesting conditions.
Revenue and income recognition
Revenue, which excludes value added tax ("VAT"),
constitutes the value of services undertaken
by the Group as its principal activities, which
are recruitment consultancy and other ancillary
services. These consist of:
-- Revenue from temporary placements, which represents
amounts billed for the services of temporary
staff including the salary cost of these staff.
This is recognised when the service has been
provided;
-- Revenue for permanent placements, which is
based on a percentage of the candidate's remuneration
package, is recognised at the date at which a
candidate commences employment. Provision is
made for the expected cost of meeting obligations
where employees do not work for the specified
contractual period.
-- Revenue from amounts billed to clients for
expenses incurred on their behalf (principally
advertisements) is recognised when the expense
is incurred.
Expenses
Operating lease payments
Payments made under operating leases are recognised
in the income statement on a straight-line basis
over the term of the lease. Lease incentives
received are recognised in the income statement
as an integral part of the total lease expense.
Taxation
Tax on the profit or loss for the period comprises
current and deferred tax charge.
Current tax is the expected tax payable on the
taxable income for the period, using tax rates
enacted or substantively enacted at the balance
sheet date, and any adjustment to tax payable
in respect of previous periods.
Deferred tax is provided on temporary differences
between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts
used for taxation purposes. The following temporary
differences are not provided for: the initial
recognition of goodwill; the initial recognition
of assets or liabilities that affect neither
accounting nor taxable profit other than in a
business combination; and differences relating
to investments in subsidiaries to the extent
that they will probably not reverse in the foreseeable
future. The amount of deferred tax provided is
based on the expected manner of realisation or
settlement of the carrying amount of assets and
liabilities, using tax rates enacted or substantively
enacted at the balance sheet date.
A deferred tax asset is recognised only to the
extent that it is probable that future taxable
profits will be available against which the asset
can be utilised.
Financial assets
Loans and receivables
Trade and other receivables that have fixed or determinable
payments that are not quoted in an active market are classified as
loans and receivables. They are initially measured at fair value
and subsequently at amortised cost less any provision for
impairment. A provision for impairment of trade and other
receivables is established when there is objective evidence that
the Group will not be able to collect all amounts due according to
the original terms of the receivables. This provision represents
the difference between the asset's carrying amount and the present
value of estimated future cash flows. The amount of the provision
is recognised in the income statement.
Cash and cash equivalents include cash in hand, deposits at call
with banks and bank overdrafts. Bank overdrafts where there is no
right of set-off are shown within borrowings in current liabilities
on the balance sheet.
Financial liabilities and equity instruments
Debt and equity instruments are classified as either financial
liabilities or as equity in accordance with the substance of the
contractual arrangements. Financial liabilities are classified as
either "financial liabilities at fair value through profit or loss
(FVTPL)" or "other financial liabilities".
When the company issues multiple instruments in a single
transaction the proceeds are allocated to each separate instrument
in accordance with their respective fair values. Where convertible
debt is issued the company determines the allocation of the
proceeds to the debt and equity components by first of all
determining the fair value of debt and then subtracting the amount
of the debt from the proceeds of the instrument as a whole to
determine the equity component.
Where a restructuring of debt arises the terms are reviewed to
consider whether there has been a substantial modification and if
so that there is an extinguishment of the existing debt and the
recognition of a new financial liability based on the amended
terms.
Financial liabilities at FVTPL
This category comprises only out-of-the-money interest rate
derivatives. They are carried in the balance sheet at fair value
with subsequent movements in fair value taken to the income
statement in the finance income or expense line. Other than these
derivative financial instruments, the Group does not have any
liabilities held for trading nor has it designated any financial
liabilities as being at fair value through profit or loss.
Other financial liabilities
Trade and other payables are recognised on the trade date of the
related transactions. Trade payables are not interest bearing and
are stated at the amount payable which is fair value on initial
recognition.
Interest bearing loans are recognised initially at fair value,
net of direct issue costs incurred, and are subsequently carried at
amortised cost using the effective interest method.
Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Group are recorded at
the proceeds received, net of direct issue costs.
Adoption of new and revised standards
The new standards, interpretations and amendments, effective
from 1 January 2016, have not had a material effect on the
financial statements.
The amendments and interpretations to published standards that
have an effective date on or after 1 January 2017 or later periods
have not been adopted early by the Group and assessment of the
impact of these standards is currently under review.
International Accounting Standards Effective
(IAS/IFRS) date
IFRS 9 Financial Instruments 01/01/2018
Revenue from Contracts with
IFRS 15 Customers 01/01/2018
--------- ---------------------------- -----------
IFRS 16* Leases 01/01/2019
--------- ---------------------------- -----------
* These standards and interpretations are not endorsed by the EU
at present.
Use of estimates and judgements
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. Actual results
may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods
affected.
In particular, information about significant areas of estimation
uncertainty and critical judgements in applying accounting policies
that have the most significant effect on the amounts recognised in
the financial statements is included below:
(a) Impairment of intangibles
The Group is required to test, on an annual basis, whether
goodwill has suffered any impairment and other assets where there
has been an indication of impairment. The recoverable amount is
determined based on value in use calculations. The use of this
method requires the estimation of future cash flows and the choice
of a discount rate in order to calculate the present value of the
cash flows. Actual outcomes may vary particularly in light of the
current volatility of the recruitment sector to changes in the
wider macro-economic environment. More information including
carrying values is included in note 10.
(b) Useful lives of intangible assets and property, plant and
equipment
Intangible assets excluding goodwill and property, plant and
equipment are amortised or depreciated over their useful lives.
Useful lives are based on the management's estimates of the period
that the assets will generate revenue, which are periodically
reviewed for continued appropriateness. Changes to estimates can
result in significant variations in the carrying value and amounts
charged to the consolidated income statement in specific periods.
More details including carrying values are included in notes 9 and
10.
(c) Share-based payments
Employee services received are measured by reference to the fair
value of the equity instruments at the date of grant, excluding the
impact of any non-market vesting conditions. The fair value of
share options is estimated by using the Black Scholes valuation
model on the date of grant based on certain assumptions. The charge
also depends on estimates of the number of options that will
ultimately vest based on the satisfaction of non-market and service
vesting conditions. No options were granted in the current or the
prior year.
(d) Onerous leases and dilapidations
Inherent uncertainties in estimates of rents that will be
received in the future on vacant property when determining the
onerous lease obligation and estimating the cost of returning the
properties to their original state at the end of the lease.
(e) Convertible loan notes
The fair value of the convertible option is estimate based on
the market rate of interest for similar company debt issues when
discounting cash flows relating to the debt component.
(f) Permanent placement provision
A provision is made for the expected cost of meeting obligations
where employees do not work for the specified contractual
period.
2 Reconciliation of operating loss to Adjusted EBITDA and
EBITA
Adjusted EBITDA is earnings before interest, taxes, depreciation
and amortisation adjusted for any one off or non-cash
administrative expenses.
Year Year
ended ended
31 December 31 December
2016 2015
GBP000 GBP000
----------------------------------- ------------ ------------
Operating (loss)/profit (2,164) 824
Add back
Amortisation of intangible assets 216 216
Impairment of goodwill 2,578 -
Share-based payment adjustment - (150)
Restructuring costs 23 20
Adjusted EBITA 653 910
------------------------------------ ------------ ------------
Depreciation 119 111
------------------------------------ ------------ ------------
Adjusted EBITDA 772 1,021
------------------------------------ ------------ ------------
3 Expenses and auditors' remuneration
Included in profit/(loss) before tax are the following:
Year Year
ended ended
31 December 31 December
2016 2015
GBP000 GBP000
----------------------------------- ------------ ------------
Pension contributions 76 78
Depreciation of owned property,
plant and equipment 119 111
Amortisation of intangible assets 216 216
Operating leases rentals - hire
of plant and machinery 24 15
Operating leases rentals - hire
of other assets 325 245
------------------------------------ ------------ ------------
Auditors' remuneration:
Amounts payable to BDO LLP in respect of both audit and
non-audit services are set out below:
Year Year
ended ended
31 December 31 December
2016 2015
GBP000 GBP000
----------------------------------------- ------------ ------------
Fees payable to the auditors for
the audit of the Company's annual
accounts 13 12
------------------------------------------ ------------ ------------
Fees payable to the auditors for
other services:
The audit of the Company's subsidiaries 18 16
Other services relating to taxation 4 4
------------ ------------
22 20
------------------------------------------ ------------ ------------
4 Staff numbers and costs
The weighted average number of persons employed by the Group
(including directors) during the period, analysed by category, was
as follows:
Number of
employees
--------------
2016 2015
----------------------------------------- ------ ------
Recruitment 76 87
Administrative staff 21 24
Temporary workers (whose costs are
included in cost of sales and services
charged within revenue) 993 1,036
----------------------------------------- ------ ------
1,090 1,147
----------------------------------------- ------ ------
The aggregate payroll costs of these persons were as
follows:
Year Year
ended ended
31 December 31 December
2016 2015
GBP000 GBP000
-------------------------------- ------------ ------------
Wages and salaries 17,998 20,876
Social security costs 979 1,014
Other pension costs 49 78
--------------------------------- ------------ ------------
19,026 21,968
Share-based payments (see note
17) - (150)
--------------------------------- ------------ ------------
19,026 21,818
-------------------------------- ------------ ------------
Directors' and key management personnel remuneration:
Key management personnel are those persons having authority and
responsibility for planning, directing and controlling the
activities of the Group. During the period these were considered to
be the directors of the Company.
Year Year
Ended ended
31 December 31 December
2016 2015
GBP000 GBP000
-------------------------------- ------------ ------------
Emoluments 426 422
Company contributions to money
purchase pension schemes 27 29
Share-based payments - (81)
--------------------------------- ------------ ------------
453 370
-------------------------------- ------------ ------------
There were 4 directors in defined contribution pension schemes
during the period (2015: 3).
The total amount payable to the highest paid director in respect
of emoluments was GBP192,427 (2015: GBP192,200). Company pension
contributions of GBP13,336 (2015: GBP14,000) were made to a money
purchase scheme on his behalf.
No options were exercised by directors during the current or
prior periods.
5 Finance expense
Year Year
ended ended
31 December 31 December
2016 2015
GBP000 GBP000
Interest expense on financial
liabilities 305 377
Amortisation of loan costs 17 29
Finance expenses 322 406
-------------------------------- ------------ ------------
6 Taxation
Reconciliation of effective tax rate
Year Year
ended ended
31 December 31 December
2016 2015
GBP000 GBP000
----------------------------------- ------------ ------------
(Loss)/profit before tax for the
period (2,486) 426
Total tax credit - -
----------------------------------- ------------ ------------
(Loss)/profit after tax (2,486) 426
------------------------------------ ------------ ------------
Tax using the UK corporation tax
rate of 20% (2015: 20%) (497) 85
Non-deductible expenses including
impairment 564 2
Deferred tax not recognised (67) (87)
Total tax (credit) - -
------------------------------------ ------------ ------------
7 Earnings per share
Basic and diluted profit/(loss) per share
The calculation of basic profit per share for the year ended 31
December 2016 was based on the loss attributable to ordinary
shareholders of GBP2,486,000 (2015: profit of GBP426,000) and a
weighted average number of ordinary shares outstanding of
339,401,134 (2015: 339,401,134) calculated as follows:
Weighted average number of shares 2016 2015
-------------------------------------- ------------ ------------
Issued ordinary shares at 1 January 339,645,061 337,894,529
Effect of shares issued - 1,506,605
Weighted average number of shares
used in basic (loss)/profit per
share 339,645,061 339,401,134
-------------------------------------- ------------ ------------
Effect of convertible debt 13,500,000 139,190,000
Effect of employee share options 2,375,000 4,053,600
-------------------------------------- ------------ ------------
Weighted average number of shares
used in diluted (loss)/profit per
share 355,520,061 482,644,734
-------------------------------------- ------------ ------------
(Loss)/profit for the year in pounds (2,486,000) 426,000
-------------------------------------- ------------ ------------
Basic (loss)/profit per share in
pence (0.73) 0.13
-------------------------------------- ------------ ------------
Diluted (loss)/profit per share
in pence (0.73) 0.11
-------------------------------------- ------------ ------------
There was no dilution in the period due to the loss in the
period.
8 Operating segments
Operating segments are components of an entity about which
separate financial information is available that is evaluated
regularly by the chief operating decision maker ("Executive
Chairman") in deciding how to allocate resources and in assessing
performance.
The operating segments have changed in 2016. Quantica S&S
and Quantica Technology are now consolidated and reported as
Quantica Group.
The Group identifies its reportable operating segments by
divisions, each of which is run by a business leader. Each
identifiable business division operates in a different market of
recruitment, has its own brand, engages in business activities from
which it may earn revenues and incur expenses, discrete financial
information is readily available and its operating results are
regularly reviewed by the Executive Chairman. Operating segment
results are reviewed to controllable contribution level which is
gross profit less employee costs and marketing costs directly
controlled by the business leader of that division.
Each division derives its revenues from supplying one or more of
contingent permanent, contract, temporary and retained search
recruitment services. Assets and liabilities are reviewed at a
Group level and are not reviewed by the Executive Chairman on a
segmental basis.
2016 2015
Operating Segment GBP000 GBP000
------------------- --------------------------- -------- --------
Revenue 17,237 17,300
Net Fee Income 4,572 4,958
----------------------------------------------- -------- --------
Berkeley Scott Controllable contribution 2,419 2,728
------------------- --------------------------- -------- --------
Revenue 2,191 2,772
Net Fee Income 1,347 1,381
----------------------------------------------- -------- --------
RK Group Controllable contribution 532 557
------------------- --------------------------- -------- --------
Revenue 2,477 4,792
Net Fee Income 837 1,362
----------------------------------------------- -------- --------
Quantica Group Controllable contribution 261 165
------------------- --------------------------- -------- --------
Other Revenue 27 -
Other Net Fee Income 27 -
------------------- --------------------------- -------- --------
Other Controllable contribution 27 -
------------------- --------------------------- -------- --------
Other Costs (2,467) (2,429)
----------------------------------------------- -------- --------
Revenue 21,932 24,864
Net Fee Income 6,783 7,701
Controllable contribution 3,239 3,450
Other costs (2,467) (2,429)
----------------------------------------------- -------- --------
Kellan Group
Total Adjusted EBITDA 772 1,021
------------------- --------------------------- -------- --------
The total of the reportable segments' Adjusted EBITDA for the
year agrees to the reconciliation to Group operating loss (see note
2).
9 Property, plant and equipment
Short
leasehold Computer
premises and
and office
Improvements Equipment Total
GBP000 GBP000 GBP000
----------------------------- ------------- ---------- -------
Cost
Balance at 1 January 2015 758 1,869 2,627
Additions (4) 165 161
Disposals - - -
----------------------------- ------------- ---------- -------
Balance at 31 December 2015 754 2,034 2,788
Additions 1 27 28
Disposals - (427) (427)
----------------------------- ------------- ---------- -------
Balance at 31 December 2016 755 1,634 2,389
----------------------------- ------------- ---------- -------
Depreciation and impairment
Balance at 1 January 2015 644 1,651 2,295
Depreciation charge for the
period 28 83 111
Disposals - - -
----------------------------- ------------- ---------- -------
Balance at 31 December 2015 672 1,734 2,406
Depreciation charge for the
period 20 99 119
Disposals - (426) (426)
----------------------------- ------------- ---------- -------
Balance at 31 December 2016 692 1,407 2,099
Net book value
At 31 December 2014 114 218 332
----------------------------- ------------- ---------- -------
At 31 December 2015 82 300 382
----------------------------- ------------- ---------- -------
At 31 December 2016 63 227 290
----------------------------- ------------- ---------- -------
10 Intangible assets
Customer
Brand
Goodwill name relations Total
GBP000 GBP000 GBP000 GBP000
----------------------------- --------- ------- ---------- -------
Cost
Balance at 1 January
2015, 31 December
2015 and 31 December
2016 24,717 922 3,609 29,248
------------------------------ --------- ------- ---------- -------
Amortisation and impairment
Balance at 1 January
2015 18,967 571 3,365 22,903
Amortisation - 128 88 216
Impairment charge - - - -
----------------------------- --------- ------- ---------- -------
Balance at 31 December
2015 18,967 699 3,453 23,119
------------------------------ --------- ------- ---------- -------
Amortisation - 128 88 216
Impairment charge 2,578 - - 2,578
------------------------------ --------- ------- ---------- -------
Balance at 31 December
2016 21,545 827 3,541 25,913
------------------------------ --------- ------- ---------- -------
Net book value
At 31 December 2014 5,750 351 244 6,345
------------------------------ --------- ------- ---------- -------
At 31 December 2015 5,750 223 156 6,129
------------------------------ --------- ------- ---------- -------
At 31 December 2016 3,172 95 68 3,335
------------------------------ --------- ------- ---------- -------
Goodwill
31 December 31 December
2016 2015
GBP000 GBP000
------------------------------------------ ------------ ------------
Berkeley Scott Regional (Former
Gold Helm Roche) branch network 1,920 1,920
Berkeley Scott London (Former Sherwoods)
branch network 569 569
RK Group 654 654
Quantica Group - 2,578
Other 29 29
------------------------------------------ ------------ ------------
3,172 5,750
------------------------------------------ ------------ ------------
The impairment review undertaken in 2016 resulted in a
GBP2,578,000 impairment charge in relation to Quantica Group (2015:
nil). The Quantica Group is now significantly different from the
business acquired in 2007, and as such it is no longer considered
appropriate to retain the GBP2,578,000 goodwill as an intangible
asset.
The recoverable amounts of all the above CGUs have been
determined from value in use calculations based on cash flow
projections from budgets covering a five year period to 31 December
2021. The major assumptions are as follows:
A discount rate of 8.90% (2015: 12.91%) has been applied to the
CGUs listed above. Discount rates are based on management's
assessment of specific risks related to the CGUs, which
approximates to the Group's pre-tax weighted average cost of
capital. An increase in the discount rate of 1% would not result in
an increased impairment.
NFI and operating margins have been based on past performance
and future expectations in the light of anticipated economic and
market conditions. Cash flows for 2017 to 2021 are based on the
forecast figures of each CGU for 2017 to 2021 based on a
conservative approach whilst considering the anticipated economic
conditions, corporate strategy and the related risk, market
intelligence/sentiment and specific knowledge of the individual
CGUs. NFI growth has been restricted to 2% for cash flows extending
beyond five years.
NFI assumptions for the cash flows for 2018 to 2021 are as
follows: 5% per annum for Berkeley Scott Regional (Former Gold Helm
Roche) branch network, 5% per annum for Berkeley Scott London
(Former Sherwoods) branch network, 5% per annum for RK Group, 6%
per annum for Quantica Group. If the following changes were made to
the above key assumptions, the carrying amount and recoverable
amount would be equal. RK Group NFI growth reduced from 5% to a
decline of 1.30% and Berkeley Scott London (Former Sherwoods) NFI
growth reduced from 6% to a decline of 14.29%.
An adjustment to reduce the forecast net cash flows by 5% would
not result in an increased impairment. An increase in the discount
rate of 1% would not result in an increased impairment.
11 Deferred tax assets and liabilities
At 31 December 2016 the amount of deductible temporary
differences, unused tax losses and unused tax credits are as
follows:
31 December 31 December
2016 2015
GBP000 GBP000
---------------------------------------- ------------ ------------
Trading losses carried forward 6,653 6,325
Capital losses carried forward 620 620
Decelerated capital allowances 1,037 538
Other deductible temporary differences 101 385
---------------------------------------- ------------ ------------
8,411 7,868
---------------------------------------- ------------ ------------
There is also a temporary difference in respect of the fair
value adjustments for intangible assets on previous acquisitions of
GBP274,000 (2015: GBP379,000) for which a corresponding deferred
tax liability has been recognised and offset against an equivalent
deferred tax asset in respect of unused tax losses, resulting in a
net position of GBPnil. In respect of the excess balances from the
table above, a deferred tax asset has not been recognised as there
is insufficient evidence that future taxable profits will be
available against which the asset can be utilised.
12 Trade and other receivables
31 December 31 December
2016 2015
GBP000 GBP000
--------------------------------- ---------------- --------------
Trade receivables 3,766 4,131
Other receivables 250 21
Prepayments and accrued income 343 263
------------------------------------- ------------ ------------
4,359 4,415
--- ------------ ------------
Days sales outstanding for 2016 was 38 days (2015: 39 days)
presenting an improvement in cash collection of 1 day. An analysis
of the allowance against accounts receivable and details of trade
receivables past due and not impaired is included in note 16.
13 Cash and cash equivalents
31 December 31 December
2016 2015
GBP000 GBP000
--------------------------- ------------ ------------
Cash and cash equivalents 1,910 1,708
--------------------------- ------------ ------------
14 Interest-bearing loans and borrowings
The carrying value and face value of loans and borrowings are as
follows:
31 December 31 December
2016 2015
GBP000 GBP000
------------------------------ ------------ ------------
Non-current liabilities
Convertible loan notes - 1,860
Other loans 1,881 1,235
1,881 3,095
------------------------------ ------------ ------------
Current liabilities
Convertible loan notes 300 -
Invoice discounting facility 3,075 2,887
------------------------------ ------------ ------------
3,375 2,887
------------------------------ ------------ ------------
Terms and debt repayment schedule
Carrying Carrying
Face Face
value Amount value amount
31 December 31 December 31 December 31 December
Year
Nominal of 2016 2016 2015 2015
interest
Currency rate maturity GBP000 GBP000 GBP000 GBP000
------------- ---------- --------- --------- ------------ ------------ ------------ ------------
Secured
loan Sterling 10% 2022 1,260 994 0 0
Secured
loan Sterling 10% 2022 600 474 0 0
Secured
loan Sterling 10% 2022 523 413 0 0
Convertible
loan notes Sterling 12% 2017 300 300 1,346 1,332
Convertible
loan notes Sterling 4% 2017 0 0 600 528
Other
loan Sterling 4% 2017 0 0 1,260 1,235
2,683 2,181 3,206 3,095
------------------------ --------- --------- ------------ ------------ ------------ ------------
The invoice discounting facility balance utilised of
GBP3,075,000 (2015: GBP2,887,000) is secured through deeds of
composite guarantees and mortgage debentures on Group companies.
The invoice discounting facility has an interest rate of 1.6% above
Barclay's base rate.
In October 2016, the company concluded a refinancing package for
the majority of its loan obligations that were due in February and
September 2017. The debt restructuring plan improved the Company's
balance sheet whilst reducing ongoing financing costs. In October
2016, the Company redeemed GBP385,000 nominal of the 12% secured
convertible loan notes 2010 ("2010 Loan Notes") and GBP661,000
nominal of the 12% unsecured convertible loan notes 2011 ("2011
Loan Notes") at a price of 70p for every GBP1 nominal. Following
these redemptions, GBP150,000 nominal of 2010 Loan Notes and
GBP150,000 nominal 2011 Loan Notes remained outstanding which were
due to be redeemed on 14 February 2017.
The GBP732,200 cost of the redemptions was funded as to
GBP366,100 by drawdown on the confidential invoice discounting
facility provided to the Company by Barclays Bank plc. The
remaining GBP366,100 was funded by BMN Commercial Limited ("BMN
Commercial") through a secured six-year loan with a nominal value
of GBP523,000, issued at 70% of par and carrying a coupon of 5% per
annum (the "BMN Commercial Loan"). BMN Commercial is a company
owned by the family of Paul Bell, who is interested in 62% of the
issued share capital of the company. This BMN Commercial Loan means
that the Company passed on 50% of the 30% of par discount it
secured for the 2010 and 2011 Loan Notes with the other 50% benefit
going directly to the Company's balance sheet.
Prior to the refinancing the Company had the following loans
from Paul Bell:
-- A secured term loan of GBP1,260,000 carrying an interest rate
of 4% annum and repayable on 20 September 2017; and
-- An unsecured convertible loan note of GBP600,000 nominal
carrying an interest rate of 4% per annum and redeemable on 20
September 2017.
Following the refinancing, the Company had the following loans
and facilities from BMN Commercial:
-- A secured term loan of GBP1,260,000 (ranking behind Barclays
Bank Plc ("Barclays") and ahead of the 2010 Loan Notes) carrying an
interest rate of 5% per annum and repayable on 20 September
2022;
-- A fixed rate secured loan note of GBP600,000 (ranking behind
the 2010 Loan Notes) carrying an interest rate of 5% per annum and
repayable on 20 September 2022; and
-- A fixed rate secured loan note of GBP523,000 (ranking behind
Barclays and ahead of the 2010 Loan Notes), issued at 70% of par,
carrying an interest rate of 5% per annum and repayable on 20
September 2022 (together these three loans are "the New
Loans").
Additionally, the Company also has a revolving secured facility
of GBP366,100 from BMN Commercial (ranking behind Barclays and
ahead of the 2010 Loan Notes) capable of drawdown at any time up to
20 August 2022, carrying an interest rate of 5% per annum and
repayable on 20 September 2022 ("the Revolving Facility"). The
Revolving Facility is effectively a replacement for the Barclays
drawdown to ensure the overall Company headroom is unaffected. The
Barclays drawdown is at a substantially lower rate of 1.6%+base
(1.85%), than the Revolving Facility and ensures the Company uses
its cheapest means of funding first.
15 Trade and other payables
31 December 31 December
2016 2015
GBP000 GBP000
--------------------------------- ------------ ------------
Trade payables 53 74
Social security and other taxes 1,175 965
Other creditors 631 589
Accruals and deferred income 1,097 1,428
--------------------------------- ------------ ------------
2,956 3,056
--------------------------------- ------------ ------------
Trade payables are non-interest bearing and are normally settled
within 45 day terms.
16 Financial instruments
Financial risk management
The Group is exposed through its operations to the following
financial risks:
-- Liquidity risk;
-- Interest rate risk;
-- Credit risk;
-- Foreign currency risk and
-- Capital risk management
Liquidity risk
Liquidity risk is managed centrally on a Group basis. The
Group's policy in respect of liquidity risk is to maintain a
mixture of long term and short term debt finance, including an
invoice discounting facility, to ensure the Group has sufficient
funds for operations for the foreseeable future. Budgets and
forecasts are agreed and set by the Board in advance to enable the
Group's cash requirements to be anticipated.
Interest rate risk
Debt is maintained at bank variable rates which inherently bring
interest rate risk. Convertible loan notes and related party loans
are maintained at the fair value of interest rates on issue. The
Group maintains detailed cash flow forecasts enabling it to factor
incremental changes in interest rates into its risk profile and
liquidity and react accordingly.
Credit risk
The Group's principal financial assets are bank balances and
cash and trade and other receivables. The Group's credit risk is
primarily attributable to its trade receivables.
The Group's policy in respect of trade receivables credit risk
requires appropriate credit checks on potential customers before
sales are made, the appropriate limiting of credit to each customer
and the close monitoring of KPI trending such as days' sales
outstanding and debtor ageing. The Group records impairment losses
on its trade receivables separately from the gross receivable and
calculates the allowance based on evidence of its likely recovery.
At the balance sheet date there were no significant concentrations
of credit risk.
The Group's credit risk on liquid funds is limited due to the
Group's policy of monitoring counter party exposures and only
transacting with high credit-quality financial institutions.
Foreign currency risk
The Group's foreign currency denominated activity is not
significant and the impact of foreign exchange movements on
reported profits, net assets and gearing are not significant. The
day-to-day transactions of overseas branches are carried out in
local currency and Group exposure to currency risk at a
transactional level is minimal.
The Group does not enter into speculative treasury arrangements
and there are no significant balances or exposures denominated in
foreign currencies.
Capital risk management
The Group manages its capital to ensure that entities within the
Group will be able to continue as a going concern whilst optimising
the debt and equity balance.
In managing its capital, the Group's primary objective is to
ensure its ability to provide a return for its equity shareholders
through capital growth. In order to achieve this objective, the
Group seeks to maintain a gearing ratio that balances risks and
returns at an acceptable level and also to maintain a sufficient
funding base to enable the Group to meet its working capital and
strategic investment needs. In making decisions to adjust its
capital structure to achieve these aims, the Group considers not
only its short-term position but also its long-term operational and
strategic objectives. The Group's gearing profile, being the
carrying amount of loans and borrowings of GBP5,028,000 (2015:
GBP5,982,000) as a percentage of total equity GBP3,665,000 (2015:
GBP3,487,000) decreased to 137% from 172% during the year.
Trade receivables impairment
Movement on trade receivables impairment provision:
31 December 31 December
2016 2015
GBP000 GBP000
---------------------------------- -------------- ------------
Provision brought forward 101 100
Increase/(decrease) in provision 0 1
----------------------------------- -------------- ------------
Provision carried forward at
year end 101 101
----------------------------------- -------------- ------------
The trade receivables past due and not impaired at the balance
sheet date amounted to GBP1,770,000 (2015: GBP2,426,000) and
comprised GBP1,299,000 (2015: GBP1,659,000) overdue by up to 30
days, GBP402,000 (2015: GBP599,000) overdue by 30-60 days and
GBP69,000 (2015: GBP168,000) overdue by more than 60 days.
The directors consider that all these receivables are fully
recoverable.
Categories of financial instruments
Financial assets
The financial assets of the Group comprised:
Loans and
receivables
2016 2015
GBP000 GBP000
------------------------------- ------- -------
Current financial assets
Trade and other receivables 4,015 4,152
Net cash and cash equivalents 1,910 1,708
------------------------------------ ------- -------
Total financial assets 5,925 5,860
------------------------------------ ------- -------
Financial liabilities
The financial liabilities of the Group comprised:
Measured at
amortised cost
2016 2015
GBP000 GBP000
------------------------------------- -------- --------
Current financial liabilities
Trade and other payables 1,859 1,628
Loans and borrowings 3,375 2,887
------------------------------------- -------- --------
Total current financial liabilities 5,234 4,515
Non-current financial liabilities
Loans and borrowings 1,881 3,095
Total financial liabilities 7,115 7,610
------------------------------------- -------- --------
The invoice discounting balance amounted to GBP3,075,000 (2015:
GBP2,887,000) and is secured by cross guarantees and mortgage
debentures on certain Group companies. GBP150,000 of the
convertible loan notes are unsecured (2015: GBP1,222,000), and the
remaining GBP150,000 of convertible loan notes (2015: GBP550,000)
are secured on the assets of the Group but subordinated to the
GBP2,383,000 loan from BMN Commercial Limited (2015: GBP1,235,000
from Mr PA Bell) which in turn is subordinated to the invoice
discounting facility and overdraft under the terms of an
inter-creditor deed.
The directors consider that the carrying amounts of financial
assets and liabilities recorded at amortised cost in the financial
statements approximate their fair values. The fair value of the
items classified as loans and borrowings is classified as Level 3
in the fair value hierarchy: The fair value for disclosure purposes
has been determined using discounted cash flow pricing models.
Significant inputs include the discount rate used to reflect the
associated credit risk.
Effective interest rates - Group
In respect of income-earning financial assets and
interest-bearing financial liabilities, the following table
indicates their effective interest rates at the balance sheet date
and the periods in which they mature.
2016 2015
------------------------------------------------- ---------------------------------------------------
0 to 1 to 2 to 0 to 2 to
Effective <1 <2 <5 Effective <1 1 to <5
interest Total years years years interest Total years <2 years years
rate GBP000 GBP000 GBP000 GBP000 rate GBP000 GBP000 GBP000 GBP000
------------- ---------- -------- -------- ------- -------- ---------- -------- -------- ---------- -------
Cash
and
cash
equivalents 0.1% 1,910 1,910 - - 0.1% 1,708 1,708 - -
Convertible
loan 12% (300) (300) - - 12% (1,324) - (1,324) -
Convertible
loan n/a - - - - 12% (536) - (536) -
Invoice
discounting 2.1% (3,075) (3,075) - - 2.1% (2,887) (2,887) - -
Other
loan 4% - - - - 4% (1,235) - (1,235) -
Secured
loan 10% (994) - - (994) n/a - - - -
Secured
loan 10% (474) - - (474) n/a - - - -
Secured
loan 10% (413) - - (413) n/a - - - -
(3,346) (1,465) - (1,881) (4,274) (1,179) (3,095) -
------------- ---------- -------- -------- ------- -------- ---------- -------- -------- ---------- -------
The above table is based on the balances at the balance sheet
date. The effect of future interest cash flows and sensitivities
applied thereon can be determined from the above effective interest
rates.
17 Employee benefits
Defined contribution plans
The Group operates a number of defined contribution pension
plans. The total expense relating to these plans in the current
period was GBP49,000 (2015: GBP78,000). GBP10,000 of pension
contributions remained outstanding at the period end (2015:
GBP9,000).
Share-based payments
The Group has 1 share option scheme with options remaining
unexercised at 31 December 2016:
2004 Approved EMI Scheme - 2,375,000 vested options remain
unexercised at 31 December 2016
The ability of a company to utilise EMI options is governed by
conditions, including those of size, that are prescribed by the
HMRC.
The number and weighted average exercise prices of share options
- are as follows:
31 December 31 December
2016 2015
Weighted Number Weighted Number
average of options average of options
exercise exercise
price price
GBP GBP
------------------------ --------- ------------ --------- ------------
Outstanding at the
beginning of the
period 0.02 4,125,000 0.02 12,176,667
Options granted during
the period - - - -
Options exercised
during the period - - - -
Options forfeited
during the period 0.03 (1,750,000) 0.03 (9,051,667)
------------------------ --------- ------------ --------- ------------
Outstanding at the
end of the period 0.02 2,375,000 0.02 3,125,000
------------------------ --------- ------------ --------- ------------
Exercisable at the
end of the period 0.02 2,375,000 0.02 3,125,000
------------------------ --------- ------------ --------- ------------
The exercise price of options outstanding at the end of the
period ranged between GBP0.02 and GBP0.03 (2015: GBP0.02 and
GBP0.03) and their weighted residual contractual life was 4 years
(2015: 5 years). All options currently in issue have vested as at
31 December 2016. There were no options exercised during the
current or prior period. The weighted average fair value of each
option granted during the period was nil as no options were granted
(2015: GBPnil).
The fair value of employee share options is measured using the
Black Scholes model. No options were granted in 2016.
18 Provisions
Onerous
Contracts and
Dilapidations
GBP000
---------------------------- ---------------
Balance at 1 January 2016 109
Provisions made during
the period 4
Provisions used during
the period (30)
---------------------------- ---------------
Balance at 31 December
2016 83
---------------------------- ---------------
Non-current at 31 December
2015 42
Current at 31 December
2015 67
---------------------------- ---------------
109
---------------------------- ---------------
Non-current at 31 December
2016 75
Current at 31 December
2016 8
---------------------------- ---------------
83
---------------------------- ---------------
Onerous contracts and dilapidations predominantly relate to the
costs payable on properties which have been vacated and incremental
costs that will be incurred on exiting existing properties where a
commitment to do so exists at the balance sheet date.
19 Capital
Share capital
31 December 31 December
Allotted, called up and fully paid 2016 2015
Ordinary shares of GBP0.0001 each
(339,645,061 shares; 2015: 339,645,061) 34 34
Deferred shares of GBP0.02 each
(212,872,170 shares; 2015: 212,872,170) 4,240 4,240
------------------------------------------ ------------ ------------
4,274 4,274
------------------------------------------ ------------ ------------
The holders of ordinary shares are entitled to receive dividends
when declared and are entitled to one vote per share at meetings of
the Company The deferred shares do not carry any dividend and
voting rights and have limited rights in a winding up of the
company.
20 Reserves
Share premium
The share premium account represents the excess of the proceeds
from the issue of shares over the nominal value of shares issued
less related issue costs.
Convertible debt reserve
The convertible reserve represents the equity component of the
convertible loan note.
Capital redemption reserve
The capital redemption reserve relates to the cancellation of
the Company's own shares.
Capital contribution reserve
The capital contribution reserve represents contributions from
shareholders.
21 Operating leases
The total future minimum lease payments of non-cancellable
operating lease rentals are payable as follows:
31 December 31 December
2016 2015
GBP000 GBP000
----------------------- ------------ ------------
Less than 1 year 395 344
Between 1 and 5 years 444 896
More than 5 years - 1
----------------------- ------------ ------------
839 1,241
----------------------- ------------ ------------
During the period GBP348,893 was recognised as an expense in the
income statement in respect of operating leases (2015: GBP245,166),
excluding amounts charged in respect of onerous contracts.
22 Related party transactions
On 11 July 2013 a loan facility of GBP600,000 and on 27
September 2013, a loan facility of GBP1,260,000 was provided to the
Company by Mr PA Bell, a major shareholder.
There was interest of GBP60,947 paid for the year ended 31
December 2016 (2015: GBP74,400).
Following refinancing in October 2016, both outstanding debt of
Mr PA Bell transferred to BMN Commercial, which is deemed to be a
related party. Also in October 2016, BMN Commercial provided a
separate loan facility to Kellan amounting GBP523,000.
No interest was paid to BMN Commercial for the year ended 31
December 2016.
Clement May Limited
R Ward is a director of Global 2016 2015
Resource Delivery Limited
Receipts for services provided GBP25,577 -
to Global Resource Delivery Limited
Amounts outstanding at the year - -
end
Support on the Spot Limited
R Ward is a director of Support
on the Spot Limited 2016 2015
Payments for services provided
by Support on the Spot Limited GBP233,848 -
Amounts due at the year end - -
The ultimate controlling party of the Company is Mr PA Bell.
23 Post balance sheet events
On 24 January 2017, the Company announced a debt restructuring
plan for the remainder of its loan obligations that were due on 14
February 2017. As part of the repayment terms, the holder agreed,
to waive the interest due in relation to the period from 1 February
2016 and extend the redemption date to 15 March 2017 (due date)
conditional upon the redemption being completed on or before the
due date. The Company redeemed GBP150,000 nominal of the 12%
secured convertible loan notes 2010 and GBP150,000 nominal of the
12% unsecured convertible loan notes 2011 at par on 10 March 2017.
Additionally, the Company also increased the revolving facility and
the BMN loan by a further GBP150,000 each to ensure the overall
Company headroom isn't eroded and the Company uses its cheapest
means of funding first.
24 Notice of Annual General Meeting
The Annual General Meeting of the Company will be held at the
Company's offices at 4th Floor, 27 Mortimer Street, London, W1T 3BL
at 2pm on 19 July 2017. The annual report will be posted to
shareholders shortly and is available from the Company's website
www.kellangroup.co.uk.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR KMGMVZLZGNZZ
(END) Dow Jones Newswires
June 20, 2017 02:00 ET (06:00 GMT)
Kellan Group (LSE:KLN)
Graphique Historique de l'Action
De Mai 2024 à Juin 2024
Kellan Group (LSE:KLN)
Graphique Historique de l'Action
De Juin 2023 à Juin 2024
