RNS Number:0440K
Reed Health Group PLC
22 March 2005
22 March 2005
Reed Health Group plc
("Reed Health" or "the Group")
Interim results for the six months ended 31 December 2004
Reed Health Group plc, a provider of staffing services in the Health, Social
Care and Education sectors, announces its interim results for the six months
ended 31 December 2004.
6 months ended 6 months ended
31 December 2004 31 December 2003
Turnover #45.1m #54.9m
Operating profit before exceptional
items and amortisation #1.3m #2.5m
(Loss)/profit before interest and tax (#1.0m) #1.7m
(Loss)/profit after interest and tax (#1.4m) #0.9m
(Losses)/earnings per share - basic and diluted (2.31p) 1.51p
* Group turnover reduced by 17.9% to #45.1 million (2003: #54.9 million),
reflecting challenging market conditions within most sectors.
* National framework and other tendering agreements are squeezing sales
and margins, without compensating volume growth, while increasing compliance
demands are creating an additional cost burden.
* Results severely impacted by #1.75 million additional costs, provisions
and interest charges relating to overdue debtors, resulting from 2004
systems implementation.
* Nurse division cost reduction programme is continuing and resulted in
costs of #0.3 million during the period. Further restructuring of Health and
Doctors divisions and other operations to be implemented in second half.
Barry Hartop, Chairman of Reed Health Group, commented:
"It is clear that these results are extremely unsatisfactory and that management
has not performed as required. This has been exacerbated by the difficult
trading conditions. Our market place is undergoing fundamental change, which
will continue to place considerable challenges upon providers of staffing
services to the public sector for the medium term. The Board have responded by
making changes to the Group's management including the welcomed appointment of
Trevor Goul-Wheeker as CEO, to inject the skills needed to transform the
business and ensure it is well positioned to take full advantage of the new
trading landscape that will emerge. These benefits will not be visible in the
short term and as stated in our trading update of 28 February, the Board
believes that Reed Health's results for year ended 30 June 2005 will be
significantly below market expectations."
Trevor Goul-Wheeker, Chief Executive of Reed Health Group, commented:
"The demand for specialist staff and related services will continue to remain
significant in our core markets. Reed Health has an established nationwide
offering in all key disciplines, which together with the quality of our staff,
leading edge systems and high quality sources of candidates provides, the
potential to offer our customers complete added value solutions. Management will
be developing the strategies required to convert the potential into results,
while fully resolving the unacceptably high level of overdue debt and driving
through cost efficiencies over the second half."
- Ends -
For further information, please contact:
Reed Health Group plc 020 7845 4702
Trevor Goul-Wheeker, Chief Executive
Weber Shandwick Square Mile 020 7067 0700
Louise Robson or Yvonne Alexander
22 March 2005
Reed Health Group plc
("Reed Health" or "the Group")
Interim results for the six months ended 31 December 2004
The Board of Reed Health Group report the Group's results for the six months
ended 31 December 2004. During the period the results have been adversely
effected by the continuing hostile conditions of the health staffing markets,
where the combination of aggressively competitive framework agreements, and
increasingly demanding compliance standards, have eroded sales and margins. Reed
Health Group is fully committed to these NHS initiatives but believe that they
also require disciplined enforcement of the contract arrangements to generate
compensating volume growth. The Group also seeks the resolution of the unequal
competition presented by NHS Professionals, which remain immune to the
compliance and commercial conditions required of private sector staffing
providers.
FINANCIAL RESULTS
Total Group turnover for the six months to 31 December 2004 decreased by 17.9%
to #45.1 million (2003: #54.9 million which included an additional trading
week's trading of #2.0 million).
Operating profit before goodwill amortisation and exceptional items decreased to
#1.3 million (2003: profit of #2.5 million). The post tax profit for the period
before goodwill amortisation and exceptional items decreased to #0.7 million
(2003: #1.7 million). The results for the year were then impacted by exceptional
costs of #1.3 million after tax and the goodwill amortisation of #0.8 million to
leave a loss for the period of #1.4 million compared with a profit of #0.9
million in 2003. Basic loss per share was 2.31 pence (2003: earnings of 1.51
pence), whilst adjusted earnings per share decreased by 2.11 pence to a loss of
0.72 pence (2003: earnings of 2.83 pence).
The results reflect #261k costs of fundamental restructuring relating to
curtailment of the 2003 Nurse expansion plan, which is explained further below.
The systems implementation issues resulted in exceptionally high debtor levels
(#15.6 million to #19.5 million), funded by an increase in the invoice
discounting facility (#2.4 million to #9.2 million). The impact of the
continuing challenge of debt recovery in the first half is twofold - additional
interest charges of #320k and greater uncertainty over overdue debts, against
which we have provided #900k. There have been additional costs of #532k
associated with the debt collection process. The payroll and debtors
difficulties have caused significant disruption to clients, candidates and Reed
Health staff, which together with the management distraction created, has
adversely impacted trading. Systems and processes are now operating at
satisfactory levels and a programme of recovery and process enhancement has been
implemented to achieve full resolution by the year end. The level of net debt
has reduced by #5.7 million from #14.0 million on 30 June 2004 to #8.3 million
on 31 December 2004.
The debtors and payroll factors have delayed the delivery of the expected cost
savings referred to in our 2004 final results announcement.
Fundamental Restructuring
As announced in October 2004, the Board took the decision to abort the Nurse
division expansion strategy, resulting in a reduction in the number of
properties that the division occupies from 12 to 2. In the second half of 2005,
further restructuring will take place in the Health, Doctors and Education
divisions but no provision has been made in this regard, as decisions concerning
the closure of premises or restructuring costs had not been made by the 31
December 2004.
The costs incurred in the half year reflect property lease and dilapidations
provisions of #135k, asset impairments of #46k and severance payments of #80k.
As noted above there will be further fundamental restructuring in the second
half of the year which could result in additional costs of around #500k.
Dividend
As part of the review of the business, which is currently being undertaken, the
dividend policy is being considered. It is the Board's intention to pay a
dividend for the year ending 30 June 2005 and the level of that dividend and
future dividend policy will be announced subject to the results for the full
year.
REVIEW OF OPERATIONS
Reed Social Care
Turnover was #17.1 million (2003: #17.3 million). The established Reed Social
Care branches have suffered increasing competition from new entrants. The sales
decline has been largely compensated by six new branches opened in 2003/04,
which have increased turnover by #1.26 million. Expansion of the network
increased branch costs by 20% year on year, and all new branches, with one
exception, were trading profitably by the end of the period.
The shortage of Qualified Social Workers remains a key issue in the sector and
this has not been assisted by the delays experienced in General Social Care
Council ("GSCC") registrations of overseas candidates.
During the period the division won six new regional preferred supplier
agreements, renewed the Rotherham Borough Council Master Vendor contract for a
second year and won a significant sole supplier contract for outreach services
for adults with physical disabilities valued at #0.5 million.
Reed Nurse
Turnover was #7.3 million (2003: #11.1 million). The decline in sales reflects
the impact of the curtailment and subsequent restructuring of the 2003 Nurse
expansion plan, together with the rigorous enforcement of compliance standards.
The decision by the Board to restructure the Nurse division resulted in seven of
the twelve branches being closed. A further two branches have been converted to
Social Care operations, leaving a total of three in the London area, which will
be further reduced to two during the second half. Branch/Divisional costs have
been reduced by 30% on prior year and the continuing business in London was
trading profitably by the end of the period.
Reed Nurse has successfully won a place on the London Agency Project ("LAP") 3
NHS framework for midwifery, mental health and general nursing staff and was
awarded the top rating (3 star status) in the pre-award audit reflecting the
Group's commitment to and investment in superior quality and compliance
standards. The LAP3 framework is expected to become operational in August 2005.
Reed Health and Reed Doctor
Turnover in the Health division was #12.8 million (2003: #16.6 million) and
turnover in the Doctors division was #7.1 million (2003: #8.6 million).
Sales and margins have suffered in both divisions reflecting the difficult
trading conditions faced within the NHS. This is largely attributable to the
combination of increasing permanent appointments, including agency candidate
conversions,, and aggressively priced framework agreements. In addition,
competitors are able to operate without apparent hindrance, irrespective of
whether they are approved within the national frameworks, have been selected as
preferred suppliers under Trust agreements or meet PASA compliance standards.
The competitive situation undermines approved supplier confidence in the will of
NHS Trusts to enforce agreement terms and address their budget deficits, as
these unapproved agencies continue to charge rates above those negotiated with
contracted suppliers.
The situation in Doctors continues to be exacerbated by the unequal competition
being presented by NHS Professionals ("NHS-P"). NHS-P has also begun operating
allied health professional banks within some trusts.
As in Nurse, the Group has taken a rigorous approach to enforcing compliance
standards in both the Doctors and Health divisions. This has prevented
candidates from filling bookings until fully compliant, which in turn has
impacted trading.
During the period, the Health division was awarded three new preferred supplier
agreements, selected as second tier suppliers within three master vendor
arrangements, won dual supplier status on a major #2 million contract and signed
up eight out of 15 Scottish Health Boards under the Scottish Health Service
("SHS") arrangement. The Doctors division has reached agreement with 13 of the
Scottish Health Boards and achieved a core supplier contract in Northern
Ireland.
The Health division has been highly focussed on preparation for the North West
London ("NWL") Strategic Health Authority ("StHA") master vendor agreement,
which is due to become fully operational on 1 April 2005. However, key decisions
are required from the authority on pay rates for selected disciplines and full
enforcement on blocking non-approved bookings in order to fully realise the
benefits of this landmark agreement.
Whilst costs in these divisions have reduced by 10% year on year, they remain
excessive in the light of current trading. The Board has therefore taken the
decision to merge and restructure these divisions in the second half.
In February 2005, Reed Health secured a High Court Judgement against three
ex-Health employees for breaches of the covenants continued in their service
agreements. Through this action the Group demonstrated its determination to
protect its property and enforce its terms of employment.
Teachers UK
Turnover was #0.65 million (2003: #1.2 million). Despite an upturn in January
placements compared with September 2004 the business remains subscale and
non-core. A strategic decision will be taken on the division before year end.
International
Turnover was #0.2 million (2003: #0.2 million). New management was installed in
the Australian and Canadian subsidiaries during the period. Early progress is
being demonstrated in improving placements in their local markets and, more
importantly, in increasing the supply of high calibre candidates to work in the
UK.
Strategy
In December 2004, the Board appointed a new Chief Executive, Trevor Goul-Wheeker.
Trevor has been charged with putting in place a recovery plan to address the
operational and structural weaknesses that are undermining the trading
performance of the Group with priority being given to the ongoing level of
overdue debt. Enhancement and fine tuning of the Group's business systems is
underway and full adherence to compliance standards is being embedded.
As announced on 17 March 2005, David Fennell, the Group's former Chief Executive
and Mark Garratt, Group Finance Director, have resigned as directors of the
Group. The Group will be appointing an Interim Group Finance Director until a
permanent Group Finance Director is appointed.
The second stage of the recovery plan will be to strengthen the organisational
structure and rebalance resources within the business. In addition to completing
the consolidation of the Nurse division, the Health and Doctors divisions will
be fully integrated and restructured during the second half. A strategic
decision will be taken on the future of the Education division and preparation
to merge the historic Locum Group and Reed Health trading entities will be
undertaken by the year end.
At this early stage of the strategic review process the directors do not feel it
is appropriate to consider the carrying value of goodwill. This will be
considered at the year end when the initial results of the strategic review will
enable a more complete assessment of the value of goodwill within the Group.
During the second half the management team will be developing the growth
strategies required to deliver sustainable profit and shareholder value.
Outlook
The core markets in Social Care and Health are undergoing a transitional period
of fundamental change. Market conditions are expected to remain highly
challenging within most sectors and it is unlikely that the current approach to
contract enforcement and problematic relationships with NHS Professionals will
be fully resolved in the medium term. Reed Health's trading in the second half
will be further impacted by the ongoing distraction of achieving full resolution
of the overdue debt, the implementation of restructuring initiatives in the
Doctors and Health divisions and a continued rigorous adherence to implementing
compliance standards throughout the Group.
However, the market potential for specialist staff within the Social Care and
Health sectors will remain substantial and both local and national government
will continue the policy of outsourcing to private sector partners. The trend
towards integrated multi-discipline and master vendor agreements encompassing a
broader range of additional services, will favour those larger staffing
providers with the required scale of offer, candidate supply and systems
infrastructure capability. Increased contractual discipline will become a
commercial reality to enable Trusts and Local Authorities to rectify budget
deficits and leakage to non-approved/non-compliant agencies will reduce. The
increasing compliance standards and HR legislation for temporary candidates will
create the first substantial barriers to entry in the staffing provision sector.
The Board believes that Reed Health is well placed to take full advantage of the
new trading landscape. The Reed brand has high quality recognition among clients
and candidates both in the UK and abroad. The Group has an established
nationwide offering in all the key Social Care and Health sector disciplines. In
addition the Australia and Canada subsidiaries provide more secure sources of
high calibre candidates in keeping with the Department of Health's Code of
Practice for international recruitment for healthcare professionals. Its leading
edge business systems have the capability of underpinning the complex
contractual arrangements being demanded and offering added value customer
efficiency and MIS benefits.
The Board recognises the impact on shareholder value during this difficult
transitional period, but is fully committed to ensuring that the foundations are
solidly laid to prepare the business for the new more mature market environment
that will emerge and to deliver sustainable profit growth and shareholder value
in the longer term.
Reed Health Group is pleased to appoint Investec as financial advisor and broker
to the Group.
- Ends -
For further information, please contact:
Reed Health Group plc 020 7845 4702
Trevor Goul-Wheeker, Chief Executive
Weber Shandwick Square Mile 020 7067 0700
Louise Robson or Yvonne Alexander
Reed Health Group plc
Consolidated Profit and Loss Account
For the six months ended 31 December 2004
Unaudited Unaudited Unaudited Unaudited Audited
6 months 6 months 6 months 6 months 12 months
ended ended ended ended ended
31-Dec-04 31-Dec-04 31-Dec-04 31-Dec-03 30-Jun-04
Pre goodwill Goodwill
amort'n & amort'n &
exceptional exceptional
items items
Note #'000 #'000 #'000 #'000 #'000
Turnover -continuing activities 1 45,129 - 45,129 54,903 104,821
Cost of sales (34,110) - (34,110) (42,050) (80,649)
------------------------------------------------------------------
Gross profit 11,019 - 11,019 12,853 24,172
Administrative expenses
Goodwill amortisation - (789) (789) (787) (1,576)
Exceptional administrative expenses 2 - (1,250) (1,250) - -
Other administrative expenses (9,768) - (9,768) (10,351) (21,148)
------------------------------------------------------------------
Total administrative expenses (9,768) (2,039) (11,807) (11,138) (22,724)
------------------------------------------------------------------
Operating (loss) / profit
- continuing activities 1,251 (2,039) (788) 1,715 1,448
Costs of fundamental restructuring 2 - (261) (261) - -
------------------------------------------------------------------
(Loss) / profit on ordinary activities
before interest 1,251 (2,300) (1,049) 1,715 1,448
Net interest payable (59) (320) (379) (40) (78)
------------------------------------------------------------------
(Loss) / profit on ordinary activities
before taxation 1,192 (2,620) (1,428) 1,675 1,370
Tax on (loss) / profit on ordinary
activities (518) 568 50 (775) (744)
------------------------------------------------------------------
(Loss) / profit for the period 674 (2,052) (1,378) 900 626
Dividends on equity shares 3 - - - (435) (1,401)
------------------------------------------------------------------
(Loss) / retained profit for the
period 674 (2,052) (1,378) 465 (775)
------------------------------------------------------------------
(Loss) / earnings per share 4
basic (2.31p) 1.51p 1.05p
diluted (2.31p) 1.51p 1.05p
adjusted basic pre exceptional
item and goodwill 1.13p 2.83p 3.69p
adjusted diluted pre exceptional
item and goodwill 1.13p 2.82p 3.69p
------------------------------------------------------------------
Dividend per share - 0.73p 2.35p
------------------------------------------------------------------
Statement of Total Recognised Gains and Losses
There were no recognised gains and losses in the period, or in the prior periods
shown, other than the results shown above.
Reed Health Group plc
Consolidated Balance Sheet
As at 31 December 2004
Unaudited Unaudited Audited
as at as at as at
31-Dec-04 31-Dec-03 30-Jun-04
Note #'000 #'000 #'000
Fixed Assets
Intangible fixed assets 27,683 29,261 28,472
Tangible fixed assets 1,390 908 1,531
----------- ----------- ----------
29,073 30,169 30,003
Current Assets
Debtors due within one year 19,495 15,585 25,316
Cash at bank and in hand 939 43 -
----------- ----------- ----------
20,434 15,628 25,316
Creditors: amounts falling due
within one year (18,391) (11,958) (22,825)
----------- ----------- ----------
Net current assets 2,043 3,670 2,491
----------- ----------- ----------
Net assets 31,116 33,839 32,494
=========== =========== ==========
Capital and reserves
Called up share capital 1,193 1,193 1,193
Share premium account 21,478 21,478 21,478
Merger reserve 6,317 6,317 6,317
Capital redemption reserve 51 51 51
Investment in own shares (105) - (105)
Profit and loss account 2,182 4,800 3,560
----------- ----------- ----------
Equity shareholders' funds 5 31,116 33,839 32,494
=========== =========== ==========
Reed Health Group plc
Consolidated Cash Flow Statement
For the six months ended 31 December 2004
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31-Dec-04 31-Dec-03 30-Jun-04
#'000 #'000 #'000
Net cash inflow / (outflow) from
operating activities 7,291 2,668 (6,721)
Returns on investment and
servicing of finance (379) (40) (78)
Taxation paid (148) (947) (1,636)
Capital expenditure and financial investment
Investment in own shares - - (105)
Payments for tangible fixed assets (110) (358) (1,334)
----------- ----------- ----------
(110) (358) (1,439)
Equity dividends paid (966) (966) (1,401)
----------- ----------- ----------
Net cash inflow / (outflow)
before financing 5,688 357 (11,275)
Financing
Funds (repaid) / advanced under
invoice discounting facility (3,757) (537) 10,060
----------- ----------- ----------
Increase / (decrease) in cash
during the period 1,931 (180) (1,215)
----------- ----------- ----------
Reconciliation of operating profit to net cash
inflow / (outflow) from operating activities
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31-Dec-04 31-Dec-03 30-Jun-04
#'000 #'000 #'000
Operating (loss) / profit (788) 1,715 1,448
Costs of fundamental restructuring (261) - -
Depreciation of tangible fixed assets 251 403 1,576
Amortisation 789 787 756
Decrease / (increase) in debtors 5,821 441 (9,048)
Increase / (decrease) in creditors 1,479 (678) (1,453)
----------- ----------- ----------
Net cash inflow / (outflow) from
operating activities 7,291 2,668 (6,721)
----------- ----------- ----------
Reed Health Group plc
Reconciliation of net cash flow to movement in net debt
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31-Dec-04 31-Dec-03 30-Jun-04
#'000 #'000 #'000
Increase / (decrease) in cash in
the period 1,931 (180) (1,215)
Decrease / (increase) in invoice
discounting facility 3,757 537 (10,060)
---------- ----------- ----------
Reduction / (increase) in net debt 5,688 357 (11,275)
Net debt at start of period (13,990) (2,715) (2,715)
---------- ----------- ----------
Net debt at end of period (8,302) (2,358) (13,990)
---------- ----------- ----------
Reed Health Group plc
Notes to the interim accounts
1. TURNOVER
The turnover for the Group is derived in the UK except for #218,000 generated in
Australia.
2. EXCEPTIONAL ITEMS
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
The loss / (profit) on ordinary 31-Dec-04 31-Dec-03 30-Jun-04
activities before taxation is stated
after charging the following exceptional
items: #'000 #'000 #'000
Fundamental restructuring costs
Restructuring of the Nurse division 261 - -
---------- ----------- ----------
Exceptional administrative expenses
Amounts in debtors currently regarded
as irrecoverable 900 - -
Provision for termination payments 200 - -
Provision for costs under onerous leases 150 - -
---------- ----------- ----------
1,250 - -
---------- ----------- ----------
3. DIVIDENDS
As part of the review of the business, which is currently being undertaken, the
dividend policy is being considered. It is the Board's intention to pay a dividend
for the year ending 30 June 2005 and the level of that dividend and future dividend
policy will be announced subject to the results for the full year.
4. EARNINGS PER SHARE
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31-Dec-04 31-Dec-03 30-Jun-04
#'000 #'000 #'000
(Loss) / earnings per the accounts (1,378) 900 626
Goodwill amortisation 789 787 1,576
Operating exceptional items:
Exceptional administrative expenses 1,250 - -
Non-operating exceptional items:
Fundamental restructuring costs 261 - -
Exceptional interest charge 320 - -
Corporation tax effect of
exceptional items (568) - -
---------- ----------- ----------
Earnings pre exceptional items
and goodwill amortisation 674 1,687 2,202
---------- ----------- ----------
The weighted average number of shares used was
Basic 59,644,772 59,644,772 59,644,772
Diluted 60,410 119,001 59,645
------------- ------------- ------------
For diluted earnings per share 59,705,182 59,763,773 59,704,417
------------- ------------- ------------
5. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31-Dec-04 31-Dec-03 30-Jun-04
#'000 #'000 #'000
(Loss) / profit for the financial year (1,378) 900 626
Investment in own shares - - (105)
Dividends - (435) (1,401)
---------- ----------- ----------
(1,378) 465 (880)
Opening shareholders' funds 32,494 33,374 33,374
---------- ----------- ----------
Closing shareholders' funds 31,116 33,839 32,494
---------- ----------- ----------
6. INTERIM REPORT
This interim report was approved by the Board on 21 March 2005. It has been
prepared using accounting policies that are consistent with those adopted in
the audited statutory accounts for the year ended 30 June 2004
This interim report was neither audited nor reviewed by the auditors.
The figures for the year to 30 June 2004 were derived from the statutory
accounts for that year. The statutory accounts for the year ended 30 June 2004
have been delivered to the Registrar of Companies and received an audit report
which was unqualified and did not contain statements under s237(2) or (3) of
the Companies Act 1985.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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