RNS Number:8527R
Hot Group PLC
10 November 2003
10 November 2003
hot group plc
("hot group" or "the Company")
Preliminary results for the year ended 31 August 2003
hot group plc, the AIM listed recruitment specialist, announces its results for
the 12 months to 31 August 2003.
At a Glance:
* Online division turns profitable in fourth quarter
* Strengthening cash position
* Continued growth in both online and traditional recruitment divisions
* Two acquisitions during the financial year and a further two
acquisitions since the August year end
* Acquisition announced today taking the group into the fast-growing
educational recruitment sector
* #10.2m raised to fund the group's acquisition programme
* New institutional investors backing the group
* Board strengthened with the appointment of a new non-executive director
and a new managing director in the traditional recruitment division
* Consolidated the group by moving into Head Offices in West London
Enquiries:
Tony Reeves
Chairman & Chief Executive
hot group plc
Tel: (0870) 202 0121
Steve Wright
Finance Director
hot group plc
Tel: (0870) 202 0121
Hugo de Salis
St Brides Media & Finance Limited
Tel: (020) 7242 4477
Chairman's Statement
I am pleased to report a year of great change and development in the group. We
have successfully implemented the second phase of our strategy and have built
two profitable stand-alone businesses, in online and traditional recruitment,
involving a series of strategic acquisitions. We acquired two businesses during
the financial year, with two further acquisitions completed since the year-end,
including today's acquisition, which takes us into one of the fastest-growing
markets, educational recruitment.
During the year we raised #10.2m to fund our acquisition programme and attracted
a number of new institutional shareholders. We are excited about the future
prospects for the business and remain alert to opportunities for significant
further growth, both organic and through acquisition.
Financial Results
The group operates in the Human Capital Service sector, where the underlying
value of businesses is based on customer service and retention, employee
experience and ownership of enabling technologies. As part of our strategy to
develop the group through acquisition, it follows therefore that the major asset
of acquired businesses is purchased goodwill.
The Board believes that in the light of this reality the most meaningful measure
of performance for hot group is operating profit/loss on ordinary activities
before any charges for goodwill amortisation.
This measure of performance provides a good indication of the cash generative
performance of the group, both in absolute terms, and also in relative terms
when viewed from an adjusted EPS perspective.
Consequently, results for the year ended 31 August 2003 show operating losses
before goodwill amortisation of #0.438m compared with losses of #2.225m for the
previous 16 month reporting period. The group's financial performance shows
continuous quarter on quarter improvements, with the first recorded profit
delivered in the fourth quarter. Sales from continuing operations grew 141% to
#2.626m.
Administrative expenses have fallen significantly from #4.357m to #2.869m,
primarily due to a combination of reduced costs in 2003 and one time charges
taken in the 16 months to 2002.
The loss on ordinary activities after taxation reported by the group shows
#4.762m, compared with the loss in the 16 month period to August 2002 of
#4.710m. This loss is stated after a goodwill amortisation charge of #5.410m,
which reflects the decision of the Board to accelerate the write off of goodwill
over 3 years instead of the previous write off period of 20 years. The Board
believes that goodwill should be written off on acquisition, but will continue
to observe current accounting guidelines.
I would also draw your attention to the deferred tax credit of #1.296m, which
has been reflected in our results. This asset has been recognised as a result of
the Board's confidence in utilising the accumulated tax losses in hotonline now
that the online division has started to generate operating profits.
Earnings per share for the period to 31st August 2003 before amortisation of
goodwill of 1.63p have improved substantially from the loss per share before
amortisation for the 16 month period to August 2002 of 29.35p.
Following our successful fund raising in August, the group has a strong cash
position, with #4.970m as at 31 August 2003.
Operations
Online Division
We have successfully consolidated our online services and now offer two distinct
products, one to agencies and one directly to employers. We are currently
looking to expand the 'hotonline' network through the acquisition of sites that
complement our current offering, thus strengthening existing products, and niche
sites that penetrate sectors new to the business. This approach will ensure an
increase in monthly traffic, enhanced response rates for customers and a
widening of our market opportunity. Furthermore, it will increase our market
share and secure our position as one of the largest suppliers of online
recruitment in the UK.
Traditional Division
Our traditional division has developed significantly over the last year.
Following three acquisitions, including today's, we now specialise in placing
temporary and permanent staff in the education, financial, retail, leisure,
secretarial and corporate sales sectors, and provide a fast, high quality
service for both clients and candidates. We see exceptional expansion
opportunities through the acquisition of businesses in niche sectors, especially
those that present synergies with our online product offerings. In this way,
both divisions are able to support and enhance the services offered by the
other.
Acquisitions
During the year we strengthened our online division with the #3m acquisition of
PlanetRecruit Limited, a leading supplier of online services for recruitment
firms and jobseekers.
We also launched our traditional recruitment division with the acquisition of
Parkside Recruitment Limited ('Parkside') for #5.5m. Established in 1989,
Parkside has annual turnover of #9.5m and specialises in the provision of
temporary and permanent finance and office staff, mainly in the Greater London
and Thames Valley region. Customers include blue chip companies such as
GlaxoSmithKline, Amazon, Honda, Waitrose, Air Products & ICI Paints.
Since the year end we have acquired Buzz Recruitment Consultancy Limited,
specialising in permanent recruitment in the leisure, retail and corporate sales
markets, and Buzz Tempz Limited, which supplies temporary staff. These two deals
cost a total of #0.38m (with additional deferred consideration of up to
#100,000, contingent upon the achievement of certain working capital targets)
and significantly strengthen our traditional recruitment business.
In addition, today we announced the acquisition of International Teachers
Network Ltd (ITN) for #5.6m in a cash and shares deal, linked to an earn-out
based on the results for the year to 31 December 2004. ITN supplies temporary
teachers to schools and local education authorities in London and the South
East. From its launch in January 2001, ITN has experienced immense growth and,
in the 12 months to December 2002, generated revenues of #6.484m and profits of
#0.645m. The education sector is a major growth area, which offers exciting
opportunities for the group; we believe there is considerable potential, through
synergies with the online division, to increase cost-effective candidate flow
and speed-up response rates to customers.
Funding
In order to fund the next phase of development, we recently raised #10.2m
through a Placing and Open Offer. Underwritten by our brokers, Numis, the
fundraising generated substantial interest from a number of significant
institutional investors who have all recognised the potential of the group.
The Board
We have strengthened our Board with the appointment of two new directors. John
Sanderson joined as a Non-Executive Director in May. John is a well known figure
in the business advisory industry with a focus on media and technology. He also
has considerable experience in the City. I am also very pleased that Doug
Woodward became Managing Director of the traditional recruitment division in
September. I previously worked with Doug at Delphi Group, where he played a key
role in the development of a leading European recruitment operation.
The Future
Our vision is to change the face of recruitment: to challenge outdated
resourcing processes by combining online and traditional recruitment through a
blend of technology, creative thinking and effective management. Over the long
term we foresee considerable scope for developing a business model that combines
the speed and cost-efficiency of online recruitment services, as well as our
bespoke candidate management software, with the personal touch provided by
traditional recruitment operations. Our aim is to provide clients with a higher
calibre short-list of candidates quickly and more efficiently. We recently
carried out a pilot scheme to explore how to operate this hybrid service most
effectively, working closely with a client who required a fresh and creative
approach to their recruitment strategy. In the medium term we aim to enhance our
organic growth by exploring potential acquisitions to expand both the online and
traditional recruitment divisions.
I would like to take this opportunity to thank all those involved in the group
for their hard work and enthusiasm over the last year. The first half of the new
financial year is already showing healthy business volumes, and we look forward
to the future with confidence.
Anthony H Reeves
10 November 2003
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 31 August 2003
Notes Year ended 16 months
31 August ended
31 August
2003 2002
#'000 #'000
Turnover
Continuing operations 2,195 1,860
Acquisitions 431 -
Discontinued operations - 971
2,626 2,831
Marketing and development costs (155) (699)
Administrative expenses - (5,410) (283)
amortisation of goodwill
- other expenses (2,869) (4,357)
Operating loss
Continuing operations (3,408) (2,221)
Acquisitions (2,400) -
Discontinued operations - (287)
2 (5,808) (2,508)
Reorganisation costs of subsidiaries (190) -
acquired during the year
Loss on disposal of Strategies - (2,198)
Division
Interest receivable 1 70
Interest payable (61) (74)
Loss on ordinary activities before (6,058) (4,710)
taxation
Tax on loss on ordinary activities 1,296 -
Loss on ordinary activities after (4,762) (4,710)
taxation
Minority interests - 26
Loss for the financial year (4,762) (4,684)
attributable to members of hot group
plc
Basic and fully diluted loss per 3 (12.01p) (31.24p)
share (pence)
Basic earnings/(loss) per share 1.63p (29.35p)
before amortisation of goodwill 3
(pence)
Total recognised gains and losses
There were no gains or losses during the two financial periods ended 31 August
2003 apart from the results shown above.
CONSOLIDATED BALANCE SHEETS
As at 31 August 2003
2003 2002
Notes #'000 #'000
Fixed assets
Intangible assets 8,160 5,255
Tangible assets 260 104
8,420 5,359
Current assets
Deferred tax assets - due mainly 1,296 -
after more than one year
Debtors - amounts falling due within 2,062 816
one year
Cash at bank and in hand 4,987 100
8,345 916
Creditors: amounts falling due within (4,169) (2,368)
one year
Net current assets/(liabilities) 4,176 (1,452)
Total assets less current liabilities 12,596 3,907
Creditors: amounts falling due after (900) (400)
more than one year
Provisions for liabilities and (179) (210)
charges
Net assets 11,517 3,297
Equity capital and reserves
Called up share capital 13,332 2,547
Share premium 9,435 7,238
Other reserve 619 619
Profit and loss account (11,869) (7,107)
Equity shareholders' funds 11,517 3,297
CONSOLIDATED CASH FLOW STATEMENTS
For the year ended 31 August 2003
Year ended 16 months
#'000 31 August #'000 ended
2003 31 August 2002
#'000 #'000
Notes
Net cash outflow 5(a) (1,010) (1,246)
from operating
activities
Returns on
investments and
servicing of
finance
Interest received 1 70
Interest paid (61) (64)
Net cash (outflow)/
inflow from returns (60) 6
on investments and
servicing of
finance
Capital expenditure
Payments to acquire (6) -
intangible fixed
assets
Payments to acquire (143) (49)
tangible fixed
assets
Net cash outflow (149) (49)
from capital
expenditure
Acquisitions and
disposals
Purchase of (5,784) (2,099)
subsidiary
undertakings
Proceeds of - 713
disposal of
Strategies Division
Net cash 937 (80)
(overdrafts)
acquired with
subsidiary
undertakings
Net overdrafts -
disposed of with 50
Strategies
Division
Net cash flow from (4,847) (1,416)
acquisitions and
disposals
Net cash outflow (6,066) (2,705)
before financing
Financing
Issue of ordinary 11,063 2,550
share captial (net
of
expenses)
New bank loans 512 -
Repayment of (511) -
loans
Net cash inflow 11,064 2,550
from financing
Increase/(decrease) 5(b) 4,998 (155)
in cash
Notes to the Financial Statements
1. Accounting policies
(a) Basis of accounting
The financial statements have been prepared under the historical cost convention
and in accordance with applicable Accounting Standards.
(b) Turnover
Turnover represents the net amount of invoices, excluding VAT. Turnover from
subscriptions to the group's online recruitment services is apportioned over the
period to which it relates. Turnover in respect of permanent placement fees is
recognised on the start date of the candidate's employment.
All turnover arises in the United Kingdom.
(c) Tangible fixed assets
Depreciation is provided in order to write each asset down to its anticipated
residual value on a straight line basis over its estimated useful life. The
annual rates in use are generally as follows:
Short leasehold Improvements Over the period of the lease
Computer and office equipment 25% -33 1/3% on cost
Fixtures and fittings 20% - 25% on cost
Motor vehicles 25% on cost
The depreciation charge is pro-rated in the years of acquisition and disposal of
assets.
(d) Development expenditure
Development expenditure is charged to the profit and loss account in the period
in which it is incurred.
(e) Consolidation
The consolidated financial statements include the results of the company and its
subsidiary companies made up to 31 August 2003. The results of subsidiaries sold
or acquired are included in the consolidated profit and loss account up to, or
from, the date control passes.
As permitted by Section 230 (3) of the Companies Act 1985, the profit and loss
account of the company is not presented as part of these financial statements.
(f) Deferred taxation
Provision is made at current rates for taxation liabilities deferred in respect
of all material timing differences. Deferred tax assets are only recognised
where recovery is more likely than not. Deferred tax balances are not
discounted.
(g) Goodwill
Purchased goodwill is amortised through the profit and loss account over the
expected useful life of the goodwill. The useful life of each acquisition is
determined separately. This policy was changed in 1999 in order to comply with
Financial Reporting Standard No. 10. Previously, purchased goodwill was written
off directly to reserves. The directors did not consider it appropriate, on the
adoption of this policy, to capitalise goodwill written off directly to reserves
in prior periods. A full year's amortisation charge is made in the year of
acquisition and none in the year of disposal.
(h) Intangible fixed assets
Amortisation is provided on intangible fixed assets at rates calculated to write
off the cost of the assets over their estimated useful lives. The estimated
useful life of each such asset is assessed separately. The amortisation charge
is pro-rated in the years of acquisition and disposal of assets.
(i) Leasing
Rentals payable under operating leases are charged to the profit and loss
account on a straight line basis.
(j) Pensions
The group contributes to defined contribution pension arrangements for certain
directors and employees. Contributions are charged to the profit and loss
account as incurred.
2. Operating loss
Year ended 16 months ended
31 August
31 August 2002
#'000
2003
#'000
The operating loss is stated after charging:
Depreciation of tangible fixed assets 69 59
Loss on disposal of tangible fixed assets - 39
Impairment of internet domain names - 129
Amortisation of goodwill 5,410 283
Operating lease rentals - equipment and 5 9
vehicles
- land and buildings 163 367
Auditors' remuneration - as auditors 30 34
- for other services 10 18
In addition to the auditors' remuneration shown above, during the year ended 31
August 2003 the Company's auditors charged #107,000 (16 months ended 31 August
2002: #98,000) for their services as reporting accountants in connection with
the acquisition of subsidiary companies and the issue of ordinary shares. These
amounts have been added to the cost of the investments in the subsidiary
companies or charged against share premium account.
3. Earnings/(loss) per share
Year 16 months
ended ended
31 August 31 August
2003 2002
Attributable loss (#'000) (4,762) (4,684)
Average number of ordinary shares in issue 39,658,584 14,994,525
Basic loss per share (pence) (12.01p) (31.24p)
Fully diluted loss per share is the same as basic loss per share.
Earnings/(loss) per share before amortisation of goodwill is based on earnings
of #1,945,000 (16 months ended 31 August 2002: loss of #4,401,000), calculated
as follows:
Year 16 months
ended
ended 31 August
2002
31 August #'000
2003
#'000
Attributable loss (4,762) (4,684)
Amortisation of goodwill 5,410 283
Earnings/(loss) before amortisation of goodwill 648 (4,401)
Earnings/(loss) per share before amortisation of
goodwill (pence) 1.63p (29.35p)
4. Reconciliation of movements in equity shareholders' funds
Year 16 months
ended
ended 31 August
2002
31 August #'000
2003
#'000
Loss for the period (4,762) (4,684)
New share capital subscribed (net of expenses) 12,982 7,590
Write off of irrecoverable minority interest - (4)
Net increase in shareholders' funds 8,220 2,902
Opening equity shareholders' funds 3,297 395
Closing equity shareholders' funds 11,517 3,297
5. Notes to the cash flow statement
Year 16 months ended
31 August 2002
ended #'000
30 April
2003
#'000
(a) Net cash outflow from operating
activities
Operating loss (5,808) (2,508)
Reorganisation costs of subsidiaries
acquired during the year (190) -
Depreciation, amortisation and 5,479 471
impairment of fixed assets
Loss on disposal of tangible fixed - 39
assets
Expenses settled by issue of share - 10
capital
(Increase)/decrease in debtors (88) 289
(Decrease)/increase in creditors (372) 243
(Decrease)/increase in provision for (31) 210
liabilities and charges
Net cash outflow from operating (1,010) (1,246)
activities
Year 16 months ended
31 August 2002
ended #'000
31 August
2003
#'000
(b) Reconciliation of net cash flow to net
funds/(debt)
Increase/(decrease) in cash 4,998 (155)
New bank loan (512) -
Loans on acquisition of subsidiary (1,000) (537)
companies
Loans repaid or converted into share 578 -
capital
Increase/(decrease) in net funds 4,064 (692)
Net (debt)/funds at beginning of year (565) 127
Net funds/(debt) at end of year 3,499 (565)
(c) Analysis of changes in net funds/(debt)
1 September Acquisitions of
subsidiary Cash flows Other movements 31 August
2002 undertakings #'000 #'000 2002
#'000 #'000 #'000
Cash at 100 937 3,950 - 4,987
bank and in
hand
Bank (128) - 111 - (17)
overdrafts
(28) 937 4,061 - 4,970
Debt due (137) - (501) 67 (571)
within one
year
Debt due (400) (1,000) 500 - (900)
after more
than one
year
Net funds/ (565) (63) 4,060 67 3,499
(debt)
This information is provided by RNS
The company news service from the London Stock Exchange
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