RNS Number : 3895D
Networkers International PLC
15 September 2008
15 September 2008
NETWORKERS INTERNATIONAL PLC
(AIM: NWKI)
Unaudited Interim Results
for the 6 month period to 30 June 2008
The Board of Networkers International Plc ('Networkers' or 'the Group'), the AIM-listed technology recruitment company, is pleased to
announce interim results for the six months ended 30 June 2008.
Highlights
* Pre-tax profits increased by 27.8% to �2.9m (2007: �2.3m);
* Basic earnings per share rose by 24.6% to 2.13p (2007: 1.71p);
* Improvement in gross profit margins to 15.3% (2007: 13.8%);
* Net fee income (gross profit) has increased by 4.8% to �12.7m (2007: �12.1m)
* Net borrowings (including drawdown on invoice discounting facilities) reduced by �3.7m compared to June 2007 resulting in a 38%
reduction in net finance charges;
* The Group's strategy to focus on higher margin business has been successfully implemented, resulting in increased net fee income,
profitability and cash flows whilst at the same time reducing high volume, low profit business;
* Strategic focus on international expansion has seen international business increase from 34% to 41% in 6 months; and
* Growth continues within the international markets, whilst domestic business presently remains steady.
Commenting on today's results, Spencer Manuel, CEO, said "These strong Interim Results demonstrate the success of the Group's strategy
of focussing on higher value business together with international expansion. We have opened offices in Malaysia and Mexico during the past
six months and will continue to maintain our focus on international expansion. "
Enquiries:
Networkers International 020 8315 9000
Spencer Manuel, CEO
Jon Plassard, CFO
www.networkersint.com
Seymour Pierce Limited 020 7107 8000
Paul Davies
Matthew Thomas
Bishopsgate Communications Ltd 020 7562 3350
Jenni Herbert
Will Tindall
Networkers International Plc
Chief Executive Officer's Report
I am pleased to report on our Interim Results for the six month period to 30 June 2008. During this time we have produced another strong
set of financial results. At the same time we have successfully rebalanced our business to focus on higher margin activities within the UK
and significantly increased our presence within international markets. As part of this strategy, we have reduced our exposure to a number of
lower value, cash-intensive contracts.
Increasing margins and profitability
The success of this strategy can be seen by the increase in gross profit margins from 13.8% to 15.3% and the increase in absolute net
fee income. This has been achieved despite having to reduce turnover in low margin business, taken on as a result of our acquisition of MSB
in 2006. Against this backdrop, we have successfully increased our total net fee income by approximately 4.8% to �12.7m (2007: �12.1m).
We have seen gross margin percentage improvements across all our key business streams. In addition, we have also seen strong volume and
rate growth within our International and Open Market business. Our Managed Accounts and Permanent recruitment divisions within the UK have
traded broadly in line with the same period last year. Contract and temporary placements now represents 81% of the group's net fee income, a
marginal increase from the 80% achieved in 2007.
Operating profit for the period has increased by 10.4% to �3.3m (2007: �3.0m). As a result of our rebalanced business, cash flows since
our last Interim Report continue to be strong which has led to a 38% reduction in net interest charges to �0.56m (2007: �0.91m).
Profit before tax has increased by 27.8% to �2.9m (2007: �2.3m). Adjusted earnings per share* has increased by 15.1% to 2.13p (2007:
1.85p) and basic earnings per share has increased by 24.6% to 2.13p (2007: 1.71p).
Strong growth in international placements
The growth in our international business during the past six months has resulted in over 41% of our net fee income having been derived
from placements outside of the UK. For 2007, this figure was only 34%. Our commitment to international expansion has further been
demonstrated by the recent opening of offices in Malaysia and Mexico. We continue to develop our already strong emerging market exposure in
Africa, Middle East, Asia Pacific and Latin America. These emerging markets now represent 56% of our international income.
Continued improvement in efficiency
Compared to the corresponding period last year, we have increased the number of sales staff by approximately 7% and reduced our non
sales staff by 6% through natural attrition. Since the start of 2008 staff numbers have remained broadly stable.
Our conversion ratio has improved to 26.2% from 25.8% in the comparative period last year, although this is marginally down on the 27.5%
achieved during the second half of 2007. We continue to look to improve the conversion ratio of the Group both by improving our margins
within our current cost structure and by maintaining strict disciplines on overhead expenditure.
Taxation
The taxation charge for the period is �0.99m (2007: �0.73m). The increase in the tax charge reflects both the increase in profits
generated during the period and the increase in the proportion of profits derived from overseas trading, which attracts tax at a higher rate
than the UK.
* adjusted for amortisation of intangible assets and share based payments as reconciled in note 2
Networkers International Plc
Chief Executive Officers Report (Continued)
Strong balance sheet and cash flow
The Group's balance sheet continues to strengthen and reflects the period's strong financial performance. Total assets remain at just
over �44m; however, we have reduced our net borrowings by �3.7m to �17.04m of which �7.4m (2007: �7.6m) relates to drawdown on invoice
discounting facilities for working capital purposes. The group's net assets have increased to �12.4m (2007: �9.3m) at the period end.
Cash generated from operations for the period totalled �3.0m (2007: outflow �0.58m). This reflects both the period's profitable trading
and the improved sales mix towards higher margin, lower volume business, which benefits from a lower working capital requirement.
Strategy, current trading and outlook
We continue to implement our strategy of focussing on international expansion. This yields higher gross margin percentages and gives
us a well diversified business in terms of geographical markets. We are actively recruiting in all our international offices and are
rolling out our offerings in IT, Finance and Engineering to compliment our current international telecoms recruitment. This has led to a
number of exciting opportunities for the Group's key employees to relocate and help drive the growth of the overseas business. Consequently,
this has had the positive impact of being able to retain and develop our top performers.
In conjunction with this strategy, we maintain our UK focus on higher value and higher margin business.
Overall, current trading remains in line with the performance achieved in the first half of the year, We are seeing some pressure in our
permanent recruitment business in the UK which, since the period end has seen a slight reduction in revenue compared to the corresponding
period last year. Our UK contracting business remains stable and our international business continues to show solid growth. We remain
mindful of the slowing UK economy; however, we believe that as a result of the strategic direction the group has taken, we are well placed
within our markets and geographically well diversified to enable us to weather a UK slowdown.
The performance of the Group, achieved through a period of difficult economic circumstances, demonstrates the hard work and capabilities
of our staff working in all of our offices around the world. On behalf of the board of directors and our shareholders, I would like to thank
them for their commitment.
Spencer Manuel
CEO
12 September 2008
BDO STOY HAYWARD LLP
Independent review report to Networkers International Plc
Introduction
We have been engaged by the company to review the financial information in the Interim Results for the six months ended 30 June 2008
which comprises the consolidated income statement, the consolidated statement of recognised income and expenditure, the consolidated balance
sheet, the consolidated cash flow statement and related notes.
We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.
Directors' responsibilities
The Interim Report, including the financial information contained therein, is the responsibility of, and has been approved by the
directors. The directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for
companies trading securities on the Alternative Investment Market which require that the half-yearly report be presented and prepared in a
form consistent with that which will be adopted in the company's annual accounts having regard to the accounting standards applicable to
such annual accounts.
Our responsibility
Our responsibility is to express to the company a conclusion on the financial information in the Interim Report based on our review.
Our report has been prepared in accordance with the terms of our engagement to assist the company in meeting the requirements of the
rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market and for no other purpose. No person
is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of
our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept
responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim
Financial Information Performed by the Independent Auditor of the Entity'', issued by the Auditing Practices Board for use in the United
Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the financial information in the Interim Report
for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange
for companies trading securities on the Alternative Investment Market.
BDO STOY HAYWARD LLP
Chartered Accountants and Registered Auditors
Gatwick
12 September 2008
Networkers International Plc
Consolidated income statement for the six month period to 30 June 2008
Note 6 months to 30 June 6 months to 30 June 12 monthsto 31
2008Unaudited 2007Unaudited December 2007
Audited
�000 �000 �000
Revenue 83,094 87,821 177,927
Cost of Sales (70,383) (75,687) (153,524)
_______ _______ _______
Gross profit 12,711 12,134 24,403
Administrative expenses
Amortisation of intangible (62) (192) (415)
assets arising on business
combinations
Other administrative expenses (9,379) (8,980) (17,899)
Total administrative expenses (9,441) (9,172) (18,314)
_______ _______ _______
Profit from operations 3,270 2,962 6,089
Finance income 100 90 11
Finance expense (664) (9907) (1,782)
Share of post tax profits of 240 250 310
joint ventures
_______ _______ _______
Profit before taxation 2,946 2,305 4,628
Tax expense (986) (733) (1,732)
_______ _______ _______
Profit for the period 1,960 1,572 2,896
_______ _______ _______
Earnings per share
Basic 2.13 p 1.71 p 3.14 p
2
Diluted 2.04 p 1.63 p 2.98 p
2
Networkers International Plc
Consolidated statement of recognised Income and expenditure for the six month period ended 30 June 2008
6 months 6 months 12 month
Unaudited Unaudited Audited
to to 30 to 31 Dec
30 June June 2007
2008 2007
�000 �000 �000
Profit for the financial period 1,960 1,572 2,896
Exchange losses on retranslation of (238) (35) (26)
foreign operations
_______ _______ _______
Total recognised income and expense 1,722 1,537 2,870
for the period
_______ _______ _______
Networkers International Plc
Consolidated balance sheet as at 30 June 2008
At 30 June At 30 June At 31 Dec
2008 2007 2007
Unaudited Unaudited Audited
�000 �000 �000
Assets
Non Current Assets
Intangible assets 4,979 5,370 5,036
Property, plant and equipment 355 346 336
Deferred tax asset 614 531 626
Investment in equity accounted 1,791 1,478 1,551
joint ventures
_______ _______ _______
Total non current assets 7,739 7,725 7,549
_______ _______ _______
Current Assets
Trade and other receivables 35,144 35,626 33,130
Current tax assets 121 - 243
Other financial assets 55 85 -
Cash and cash equivalents 1,555 771 2,000
_______ _______ _______
Total current assets 36,875 36,482 35,373
_______ _______ _______
Total assets 44,614 44,207 42,922
_______ _______ _______
Liabilities
Current Liabilities
Trade and other payables (13,231) (13,131) (11,520)
Loans and borrowings (11,118) (10,340) (10,979)
Provisions (141) - (158)
_______ _______ _______
Total current liabilities (24,490) (23,471) (22,657)
_______ _______ _______
Non current liabilities
Loans and borrowings (7,481) (11,168) (9,325)
Provisions (269) (232) (262)
Other financial liabilities - - (35)
_______ _______ _______
Total non current liabilities (7,750) (11,400) (9,622)
_______ _______ _______
Total liabilities (32,240) (34,871) (32,279)
_______ _______ _______
Total Net Assets 12,374 9,336 10,643
_______ _______ ________
Networkers International Plc
Consolidated balance sheet as at 30 June 2008 (continued)
Note At 30 June At 30 June At 31 Dec
2008 2007 2007
Unaudited Unaudited Audited
�000 �000 �000
Equity
Ordinary shares 921 921 921
Retained earnings 3 11,197 7,851 9,149
Foreign exchange reserve 3 (420) (112) (103)
Reverse acquisition reserve 3 676 676 676
_______ _______ _______
Total equity 12,374 9,336 10,643
_______ _______ ________
Networkers International Plc
Consolidated cash flow statement for the period ended 30 June 2008
Note 6 months to 6 months to 12 months to
30 June 30 June 31 December
2008 2007 2007
Unaudited Unaudited Audited
�000 �000 �000
Cash flow from operating
activities
Profit before taxation 2,946 2,305 4,628
Adjustments for:
Share of profit in joint (240) (250) (310)
venture
Depreciation 142 141 247
Amortisation of intangibles 62 192 466
Loss on sale of property, - - 41
plant and equipment
Equity settled share based 41 24 97
payments
Movement on fair value of (90) (85) 35
derivatives
Finance income (10) (5) (11)
Finance expense 664 997 1,747
______ ______ ______
Cash flows from operating 3,515 3,319 6,940
activities before changes in
working capital and provisions
(Increase) / decrease in (2,216) (2,112) 525
debtors
Increase / (decrease) in 1,695 (1,791) (1,532)
creditors
Decrease in provisions - - (1,861)
______ ______ ______
Cash inflow / 2,994 (584) 4,072
(outflow)generated from
operations
Income taxes paid (887) (599) (2,075)
______ ______ ______
Net cash flows from operating 2,107 (1,183) 1,997
activities
Cash flow from investing
activities:
Interest received 10 5 11
Purchase of property, plant (119) (68) (251)
and equipment
Purchase of intangibles (45) (19) (45)
Proceeds from the sale of - - 22
property, plant and equipment
Payments to acquire investment - (30) (43)
in joint venture
______ ______ ______
Net cash used in investing (154) (112) (306)
activities
Cash flow from financing
activities:
Interest paid (664) (997) (1,747)
Issue of term loan - 1,500 1,500
Drawdown of invoice 139 2,031 1,770
discounting
Repayment of term loan (1,843) (1,800) (2,555)
______ ______ ______
Net cash used in financing (2,368) 734 (1,032)
activities
Net (decrease)/increase in 4 (415) (561) 659
cash & cash equivalents
Cash and cash equivalents at 2,000 1,367 1,367
beginning of period
Exchange gains/(losses) on (30) (35) (26)
cash and cash equivalents
______ ______ ______
Cash and cash equivalents at 1,555 771 2,000
end of period
______ ______ ______
Networkers International Plc
Notes to the accounts
1 Basis of preparation
This financial information has been prepared using the recognition and measurement principles of International Accounting Standards,
International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively Adopted IFRSs). The
principal accounting policies used in preparing the interim results are those the group expects to apply in its financial statement for the
year ended 31 December 2008 and are unchanged from those disclosed in the group's Report and Financial Statements for the year ended 31
December 2007. The financial information for the six months ended 30 June 2008 the six months ended 30 June 2007 is unaudited and does not
constitute the group's statutory financial statements for those periods. The comparative financial information for the full year ended 31
December 2007 has, however, been derived from the audited statutory financial statement for that period. A copy of those statutory financial
statements has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, did not include references to any matters to which the auditors drew attention
by way of emphasis without qualifying their report and did not contain a statement under section 237(2)-(3) of the Companies Act 1985.
The Board of Directors approved this interim report on 12 September 2008.
Networkers International Plc
Notes to the accounts (Continued)
2 Earnings per share
The calculation of basic earnings per share is based on the profit after taxation and minority interests.
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2008 2007 2007
�000 �000 �000
Numerator
Earnings used for calculations of
basic and diluted EPS 1,960 1,572 2,896
Add back:
Amortisation of intangible assets 62 192 415
acquired through business
combinations
Share based payments (net of tax) 29 19 68
________ ________ ________
Earnings used for adjusted EPS 2,051 1,783 3,379
________ ________ ________
30 June 30 June 31 December
2008 2007 2006
Number Number Number
Denominator
Weighted average number of shares 92,115,377 92,115,377 92,115,377
used in basic EPS
Exercise of options 4,202,325 4,382,034 5,119,373
________ ________ ________
Weighted average number of shares 96,317,702 96,497,411 97,234,750
used in diluted EPS
________ ________ ________
Basic (pence) 2.13p 1.71p 3.14p
________ ________ ________
Diluted (pence) 2.04p 1.63p 2.98p
________ ________ ________
Adjusted (pence) 2.13p 1.85p 3.48p
________ ________ ________
The number of anti dilutive share options excluded from the calculations is 50,000 (2007 - 50,000)
Networkers International Plc
Notes to the accounts (Continued)
3 Reserves
Reverse Foreign Retained
Acquisit Exchange Earnings
ion Reserve �000
Reserve �000
�000
As at 1 January 2008 676 (103) 9,149
Profit for the period - - 1,960
Unrealised foreign exchange losses - (238) -
Transfer between reserves - (79) 79
Share based payment credit - - 41
Deferred tax in respect of share based - (32)
payment -
________ ________ ________
As at 30 June 2008 676 11,197
(420)
________ ________ ________
4 Reconciliation of Cash and cash equivalents
30 June 30 June 31 Dec
2008 2007 2007
�000 �000 �000
Cash available upon demand 1,573 771 2,000
Bank overdrafts (18) -
-
______ ______ ______
Cash and cash equivalents 1,555 771 2,000
______ ______ ______
5 Payment of Dividend
The Directors do not recommend the payment of an interim dividend for the six months ended 30 June 2008.
These interim results are available from the Group's website www.networkersint.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
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