RNS Number:7877V
Reed Health Group PLC
25 February 2004
25 February 2004
Reed Health Group plc
("Reed Health" or "the Group")
Interim results for the six months ended 31 December 2003
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 2003.
6 months ended 6 months ended
31 December 31 December
2003 2002
Turnover #54.9m #58.3m
Operating profit (excluding new branch costs) #3.2m #3.3m
Profit before tax #1.7m #3.1m
Earnings per share - basic and diluted 1.51p 3.22p
Interim dividend 0.73p 0.73p
* Group turnover reduced by 6% to #54.9 million (2002: #58.3 million).
* Investment of #1.5 million charged to the profit and loss account in
respect of new branch openings and strengthened management team.
* Cost reduction programme implemented during the period, benefits to come
through towards the end of the current financial year.
* Impact of new PASA requirements to continue to affect Nurse Division in
the second half.
* Dividend maintained at 0.73 pence (2002: 0.73 pence).
Barry Hartop, Chairman of Reed Health Group, commented:
"Our markets remain challenging, particularly in Allied Health and Education,
and in Nurse with the increased compliance requirements from PASA. As stated in
our trading update of 20 February, with no substantial improvements in the
Group's markets expected in the short term,the Board believes that Reed
Health's results for year ended 30 June 2004 will be significantly below earlier
expectations.
"We are in a growth sector and by keeping a tight rein on our operating costs
and offering an attractive, reliable and competitive service, for both clients
and candidates, we will continue to compete aggressively in our markets and
generate shareholder value by growing a strong business."
- Ends -
For further information, pleasecontact:
Reed Health Group plc 020 7834 3181
David Fennell, Chief Executive
Mark Garratt, Finance Director
Weber Shandwick Square Mile 020 7067 0700
Louise Robson orSusanne Walker
Reed Health Group plc
("Reed Health" or "the Group")
Interim results for the six months ended 31 December 2003
The Board of Reed Health Group reports the Group's results for the six months
ended 31 December 2003. During these six months the Group responded to an
increasingly competitive environment by implementing a cost reduction programme
and improving the efficiency of its back office systems. At the same time, we
have remained committed to achieving organic growth and as a result have
extended our branch network from 20 to 28 locations in the UK and significantly
strengthened our sales force.
Financial Results
Total Group turnover for the six months to 31 December 2003 decreased by 6% to
#54.9 million, compared with #58.3 million for the same period last year. With
the investment in organic growth being charged to profit, operating profit was
down 48% to #1.7 million (2002: #3.3 million), with pre-tax profit decreasing by
45% to #1.7 million (2002: #3.1 million). Basic earnings per share were 1.51
pence (2002: 3.22 pence), whilst adjusted earnings per share decreased by 44%
to 2.83 pence (2002: 5.08 pence).
Our cost reduction programme is progressing well, yielding annualised savings of
#1.2 million. These savings have been achieved by reducing total headcount by
10% at the end of 2003 and through the tightmanagement of administrative costs.
Dividend
The Board is recommending an interim dividend of 0.73 pence (2002: 0.73 pence)
payable on 12 April 2004 to shareholders on the register on 9 March 2004.
REVIEW OF OPERATIONS
Social Care
Turnover was #17.2 million (2002: #17.6 million). Branch costs were held below
budget, but were 14% up on prior year due to expansion of the branch network.
Divisional overheads were also held below budget, but were 26% up on prior year
due to the strengthening of the management team. All five new branches opened in
this period were trading within 6 weeks of their opening and we expect the
beneficial impact of the new openings to come through next financial year.
A national preferred provider agreement has been negotiated with Craegmoor
Healthcare, which is expected to generate in excess of #1 million in turnover
over the next financial year and we are generating significant business from our
sole agency contract with Rotherham Borough Council. We have also been awarded a
supply contract with Denbighshire Council to source personnel from overseas and
await the outcome of three other similar tenders.
Allied Health Professions
Turnover in this division was #16.6 million (2002: #20.7 million). Demand was
particularly weak in Physiotherapy and competition increased significantly
especially in Laboratory staff.
In response, costs have been tightly managed and branch costs were held 6% below
the prior year and divisional overheads were down 30%.
During the first half, fourteen tenders were submitted, of which 80% were
successful, yielding #1 million turnover, and two outcomes are pending. In
December 2003 Hammersmith Hospitals NHS Trust awarded Reed Health Group a trial
contract as master vendor for its Pathology staff. We have also been awarded
master vendor status by Boots for the provision of all temporary podiatry staff
and selected as preferred provider for Physiotherapists and Occupational
Therapists at Ealing Hospital NHS Trust.
Nurse
Turnover was #11.1 million (2002: #11.3 million) whilst gross margins were up by
5%. Branch costs were held below budget but were 97% up on prior year, due to
expansion of the branch network to 13 branches, along withthe costs of
attaining the NHS Purchasing and Supply Agency ("PASA") compliance under the
London Agency Project. PASA is now requiring a significant number of compliance
checks to be performed on staff to be supplied by agencies. In order to ensure
that we meet PASA's requirements, we have had to withdraw a number of nurses who
would normally have been available through our London branches and this has had
a detrimental impact on the Group's Nurse business. This also affected
divisional overheads, which were up 213% on prior year as the senior management
team was replaced and additional staff taken on. To achieve compliance, nurses
are now given more training and assessments than before but we believe that this
will benefit us in the future as these new requirements form a major barrier to
new entrants and to existing small players.
Reed Nurse won a new contract in October to run the nurse bank for Enfield,
Barnet and Haringey NHS Trust and this is performing well. At the start of 2004,
the division was awarded a position as one of three suppliers to the South Essex
Mental Health Partnership NHS Trust.
Medical
Turnover in this division was up 32% to #8.6 million (2002: #6.5 million), an
encouraging performance, in view of the uncertainties surrounding the new
National Framework Agreement. By offering competitive pricing more bookings were
received from more NHS Trusts.
However, NHS Purchasing and Supplies has, as yet, not been able to prevent
unauthorised suppliers securing business at inflated rates at some Trusts. This
has kept the market rate of pay moving upwards, which has eroded the margins of
authorised suppliers, such as ourselves. We expect to be given the opportunity
to submit revised prices for the NHS Framework Agreement later in 2004.
Education
Turnover was #1.2 million (2002: #2.2 million). As forecast in our Annual
Report, trading has remained very quiet in the first half and costs have been
reduced proportionately. Branch costs wereheld below budget and 11% below the
prior year. Divisional costs were held 27% below prior year.
International
Turnover was #0.2 million (2002: #nil) as local placements began in our
Australian office, which predominately sources candidates to work in the UK.
Market and Strategy
The Group's whole relationship with the NHS is undergoing change through
contracts operated by PASA and as NHS Professionals expands around the country.
In response to a reduction in the number of large sole provider contracts for
temporary staff being offered for tender by the NHS, the Group has responded by
expanding the branch network from 20 to 28 locations in the UK to achieve
organic growth. Reed Health's increased coverage throughout the country has the
advantage of attracting local candidates in the nursing and caring professions
who wish to visit a nearby branch. In addition, the Group is meeting the
changing pattern of demand in the marketplace for permanent and temporary
candidates and isincreasing its focus, in line with this demand, on permanent
staff.
Under the first round of awards, private operators have started to operate the
first Independent Sector Treatment Centres. At the end of 2003 Reed Health Group
picked up additional bookings from this new market. Over the next five years, we
expect to see the independent sector grow, in both our Health and Social Care
markets, and we aim to win a growing share of this business. Whilst we will
continue to focus on our core UK market, we are also developing our overseas
expertise. For example, we have developed a successful Australian recruiting
operation, placing candidates in temporary positions before and after their time
in the UK.
Our immediate focus is to build sales in recently opened branches and to move
them into profitability on schedule. At the same time, we are pressing hard to
follow our successful contract with Manchester City Council, to recruit
qualified social workers from Canada, with contracts with other local
authorities.
Several local authorities in the south east of England have recently awarded
large "master vendor" contracts for the supply of temporary staff for social
work. We are building up our business development team to win contracts in this
emerging market.
Besides strengthening our branch network and our sales force, we will invest, in
the second half, in the redesign of our back office pay and bill system to
integrate the two inherited systems, and take full advantage of the latest
technology. It is expected that this will reduce our cost of processing
timesheets by half and will start to impact towards the end of this financial
year.
Outlook
Our markets remain challenging, particularly in Allied Health and Education and
in Nurse, with the increased compliance requirements from PASA. We also
anticipate that the additional requirements for training and assessments to be
carried out on nurses will continue to impact on our ability to provide
candidatesover the next six months as it will for other agencies. As stated in
our trading update of 20 February 2004, with no substantial improvements in the
Group's markets expected in the short term the Board believes that Reed Health's
results for year ended 30 June 2004 will be significantly below earlier
expectations.
Going forward, margins are likely to come under some pressure due to the
National Framework Agreements, but on balance, we expect this to be compensated
by an increase in higher margin permanent placements. Meanwhile, central
overheads continue to be managed as part of both our cost reduction programme
and the integration of our back office systems.
The NHS is expanding the number of people it employs. After an initial delay, we
believe this will be good for us in the long term because it creates more
positions which need occasional temporary cover. In addition, the efforts
involved in achieving compliance should lead to us being protected by barriers
to entry, which only a company with our size, quality systems and reputation can
handle.
We are in a growth sector and by keeping a tight rein on our operating costs and
offering an attractive, reliable and competitive service, for both clients and
candidates, we will continue to compete aggressively in our markets and generate
shareholder value by growing a strong business.
- Ends -
For further information, please contact:
Reed Health Group plc 020 7834 3181
David Fennell, Chief Executive
Mark Garratt, Finance Director
Weber Shandwick Square Mile 020 7067 0700
Louise Robson or Susanne Walker
Consolidated Profit and Loss Account
For the six months ended 31 December 2003
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31-Dec-03 31-Dec-02 30-Jun-03
Note #'000 #'000 #'000
Turnover -
continuing
activities 1 54,903 58,272 116,153
Cost of sales (42,050) (45,033) (89,601)
--------------------------------------
Gross profit 12,853 13,239 26,552
Administrative expenses (11,138) (9,930) (20,712)
Operating profit before
amortisation and exceptional
items 2,502 4,555 7,876
Exceptional item 2 - (460) (460)
Goodwill amortisation (787) (786) (1,576)
Operating profit - continuing
activities 1,715 3,309 5,840
--------------------------------------
Net interest payable (40) (172) (272)
--------------------------------------
Profit on ordinary activities
before taxation 1,675 3,137 5,568
Tax on profit on ordinary
activities (775) (1,216) (2,304)
--------------------------------------
Profit for the period 900 1,921 3,264
Dividends on equity shares 3 (435) (435) (1,401)
--------------------------------------
Retained profit for the period 465 1,486 1,863
--------------------------------------
Earnings per share
basic 4 1.51p 3.22p 5.47p
diluted 4 1.51p 3.22p 5.47p
adjusted basic pre
exceptional item
and goodwill 4 2.83p 5.08p 8.89p
adjusted diluted pre
exceptional item
and goodwill 4 2.82p 5.08p 8.88p
Dividend per share
interim 3 0.73p 0.73p 0.73p
total 3 - - 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.
Summarised Consolidated Balance Sheet
As at 31 December 2003
Unaudited UnauditedAudited
as at as at as at
31-Dec-03 31-Dec-02 30-Jun-03
Note #'000 #'000 #'000
Fixed Assets
Intangible fixed assets 29,261 30,647 30,048
Tangible fixed assets 908 1,220 953
----------------------------------------
30,169 31,867 31,001
Current Assets
Debtors due within one year 15,585 16,527 16,026
Cash at bank and in hand 43 141 223
----------------------------------------
15,628 16,668 16,249
Creditors: amounts falling
due within one year (11,958) (15,526) (13,864)
----------------------------------------
Net current assets 3,670 1,142 2,385
Total assets less current
liabilities 33,839 33,009 33,386
Provisions for liabilities
and charges - (12) (12)
----------------------------------------
Net assets 33,839 32,997 33,374
========================================
----------------------------------------
Equity shareholders' funds 5 33,839 32,997 33,374
========================================
Consolidated Cash Flow Statement
For the six months ended 31 December 2003
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31-Dec-03 31-Dec-02 30-Jun-03
#'000 #'000 #'000
Net cash inflow from operating activities 2,668 4,550 8,843
Returns on investment and
servicing of finance (40) (177) (272)
Taxation paid (947) (595) (2,622)
----------------------------------
1,681 3,778 5,949
Capital Expenditure
Payments for tangible fixed assets (358) (354) (562)
----------------------------------
Equity dividends paid (966) (799) (1,234)
----------------------------------
Net cash inflow before financing 357 2,625 4,153
Financing (537) (3,623) (5,069)
----------------------------------
Decrease in cash during the period (180) (998) (916)
----------------------------------
Reconciliation of operating profit to net
cash inflow from operating activities Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31-Dec-03 31-Dec-02 30-Jun-03
#'000 #'000 #'000
Operating profit 1,715 3,309 5,840
Depreciation of tangible fixed assets 403 209 683
Amortisation 787 786 1,576
Decrease in debtors 441 3,175 3,676
Decrease in creditors (678) (2,929) (2,932)
----------------------------------
Net cash inflow from operating activities 2,668 4,550 8,843
----------------------------------
Reconciliation of net
cash flow to movement
in net debt Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31-Dec-03 31-Dec-02 30-Jun-03
#'000 #'000 #'000
Decrease in cash in the period (180) (998) (916)
Repayment of loans - 8,000 8,000
Decrease / (increase) in invoice
discounting facility 537 (4,377) (2,938)
----------------------------------
Reduction in net debt 357 2,625 4,146
Net debt at start of period (2,715) (6,861) (6,861)
----------------------------------
Net debt at end of period (2,358) (4,236) (2,715)
----------------------------------
Analysis of Net Debt Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31-Dec-03 31-Dec-02 30-Jun-03
#'000 #'000 #'000
Cash: Cash at bank and in hand 43 141 223
Borrowings: Amounts owed under invoice
discounting facility (2,401) (4,377) (2,938)
----------------------------------
Net debt (2,358) (4,236) (2,715)
----------------------------------
Notes to the interim accounts
1. TURNOVER
The turnover for the Group is derived in the UK except for #194,000 generated in
Australia.
2. EXCEPTIONAL ITEM
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31-Dec-03 31-Dec-02 30-Jun-03
#'000 #'000 #'000
The profit on ordinary activities
before taxation is stated after charging
the following exceptional item:
Costs in connection with the AGM 2002 - 460 460
---------------------------------------
3. DIVIDENDS
The interim dividend of 0.73p per share will be paid on 12 April 2004 to
shareholders on the register at 9March 2004.
4. EARNINGS PER SHARE
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31-Dec-03 31-Dec-02 30-Jun-03
#'000 #'000 #'000
Earnings per the accounts 900 1,921 3,264
Exceptional items - 460 460
Tax relief - (138) -
Goodwill amortisation 787 786 1,576
---------------------------------------
Earnings pre exceptional items
and goodwill amortisation 1,687 3,029 5,300
---------------------------------------
The weighted average number of shares used was
Basic 59,644,772 59,644,772 59,644,772
Diluted 119,001 - 51,844
---------------------------------------
For diluted
earnings per share 59,763,773 59,644,772 59,696,616
---------------------------------------
5. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31-Dec-03 31-Dec-02 30-Jun-03
#'000 #'000 #'000
Total recognised gains and losses
relating to the period 900 1,921 3,264
Dividends (435) (435) (1,401)
Additional net expenses of share
issue - (7)(7)
---------------------------------------
Net addition to shareholders' funds 465 1,479 1,856
Opening shareholders' funds 33,374 31,518 31,518
---------------------------------------
Closing shareholders' funds 33,839 32,997 33,374
---------------------------------------
6. INTERIM REPORT
This interim report was approved by the Board on 24 February 2004.
There have been no changes to the accounting policies as set out in the 2003
Financial Statements.
The figures for the year to 30 June 2003 were derived from the statutory
accounts for that year. The statutory accounts for the year ended 30 June 2003
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 CompaniesAct 1985.
The above financial information does not constitute statutory accounts as
defined in S240 of the Companies Act 1985.
INDEPENDENT REVIEW REPORT TO REED HEALTH GROUP PLC
Introduction
We have been instructed by the company to review the financial information set
out on pages x to y. 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. This report is made solely to
the company in accordance with guidance contained in Bulletin 1999/4 'Review of
interim financial information' issued by the Auditing Practices Board. To the
fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the company, for our work, for this report, or for the
conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, andhas been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied, unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom Auditing Standards and therefore
provides a lower level of assurance than an audit. Accordingly we do not express
an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 December 2003.
RSM Robson Rhodes LLP
Chartered Accountants
London, England
25 February 2004
This information is provided by RNS
The company news service from the London Stock Exchange
END
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