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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Healthcare Loc | LSE:HLO | London | Ordinary Share | GB00B0MD8242 | ORD 10P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 0.75 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
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0 | 0 | N/A | 0 |
TIDMHLO
RNS Number : 3884N
Healthcare Locums PLC
28 September 2012
Healthcare Locums plc ("the Company" or "the Group")
Interim Results for the 26 Week Period Ended 1 July 2012
Healthcare Locums plc today announces its interim results for the 26 week period ended 1 July 2012.
FINANCIAL HIGHLIGHTS
-- Revenue of GBP101.1m (H1 2011: GBP116.8m) -- Adjusted EBITDA* loss of GBP0.8m (restated H1 2011: profit GBP3.7m) -- Adjusted loss from continuing operations** of GBP4.0m (restated H1 2011: profit GBP0.6m) -- Loss from continuing operations of GBP4.8m (restated H1 2011: loss GBP6.8m) -- Net debt GBP30.9m (31 December 2011: GBP26.0m) -- Financial covenants reset and start of loan repayments deferred until June 2013
OPERATIONAL HIGHLIGHTS
Group
-- New brand structures in place -- Core values established and operational procedures re-defined
UK
-- UK revenues of GBP45.2m down by GBP14.8m, reflecting the move to a framework supplier to the NHS, resulting in lower margins in return for the potential of higher volumes
-- UK adjusted EBITDA* loss of GBP2.2m, down by GBP2.4m compared with H1 2011 and a GBP0.8m improvement on H2 2011
-- Invoiced hours ahead of H2 2011 in Doctors and General Nursing
-- Growth has been adversely impacted by delays in the NHS framework renewal procurement process
-- Contracts for first two implementations of HCL Clarity as a managed solutions pilot expected to be signed in Q4 2012
Australia
-- Australia revenues of GBP55.9m down by GBP0.9m, reflecting reduced demand in the private sector and more recently in the public sector
-- Australia adjusted EBITDA* of GBP1.4m, down by GBP2.1m impacted by reduced revenues and margins and increased investment in headcount which has yet to deliver the anticipated growth
-- Nursing Agency targeting growth by increasing market penetration in eastern states and widening client base in public sector
-- New management in place in Locum Doctors business with remit to expand nationally
*Adjusted EBITDA is earnings before depreciation, amortisation, interest and tax and before highlighted operating expenses and share-based payments charges or credits
** Adjusted loss from continuing operations is loss from continuing operations before highlighted operating expenses
Peter Sullivan, Chairman, commented:
"The first half of the year has been a challenging one for the business but we are pleased that we have achieved progress as we implement our strategy for restructuring the business.
"While there remain a number of risks and challenges for the Group, the business has strong support from its bankers and other stakeholders and the Board believes that the Group will prosper as the initiatives that have been undertaken to set the business up for future sustainable growth begin to deliver results."
Further Enquiries:
Healthcare Locums plc Stephen Burke, CEO 020 7451 1451 Sue Bygrave, CFO Investec Gary Clarence 020 7597 5970 Patrick Robb Pelham Bell Pottinger David Rydell 020 7861 3232 Emma Kent Duncan Mayall Charlotte Offredi
CHAIRMAN'S STATEMENT
Introduction
Our strategy to stabilise the business, involving a restructure and re-engineering of all operations and processes, has continued in earnest during the first half of the year, as we endeavour to set the business on a path to deliver sustainable growth. Progress is being made across the business. In the UK this has been achieved by working closely with the NHS through the framework agreements and by re-engineering the UK business model to be fully transparent with the introduction of our new brand structure. However, growth in the UK has been adversely impacted by delays in the NHS framework renewal procurement process.
In Australia, trading has been impacted by reduced demand in the private sector and, towards the end of the period, in the public sector and in our recently integrated locum doctors business. We have made management changes to align the doctors business more closely with our national nursing business. Although these factors have held the business back in H1 2012, the Board and executive management still consider there to be significant opportunities to grow this business.
A significant opportunity for the Group is HCL Clarity, our innovative software-led managed service solution designed to optimise the management of the substantive and locum workforce in the healthcare sector. Implementing this solution in healthcare trusts and hospitals will deliver significant savings to our customers by providing visibility and control in optimising the workforce and reducing the cost of agency spend. We expect to sign contracts for our first two pilot implementations in Q4 2012.
A core part of our strategy is to transform the Company into one which puts customer satisfaction at the heart of its business. This transformation of the business is consistent with and driven by the Company's core values:
-- Integrity -- Excellence -- Collaboration -- Innovation -- Sustainability
These values, established internally by consensus, are being instilled in the business through our training and performance management processes.
Group Results for the 26 weeks ended 1 July 2012
As previously announced, the Group has moved to a rolling 52 week period for financial reporting purposes. Consequently, these interim results are for the 26 week period ended 1 July 2012. The Group reported revenue for this period of GBP101.1m (H1 2011: GBP116.8m) and an adjusted loss from continuing operations, before highlighted items and share-based payments charges or credits, of GBP4.0m (restated H1 2011: profit GBP0.6m). The adjusted EBITDA for the period was a loss of GBP0.8m (restated H1 2011: profit GBP3.7m). These results are analysed in more detail in the Operating and Financial Review. Prior year comparatives have been restated to reflect the restatements made in the 2011 Annual Report and Financial Statements.
In the UK, revenues have decreased as a result of the move to framework supply which has lower margins but the potential of significantly higher volumes. This move is in line with the Group's stated strategy of aligning the services delivered by the UK business with the objectives of the NHS to reduce costs and improve the quality of supply. Our objective is to gain a larger share of this business. The delays in the NHS framework renewals this year have, however, constrained the Group's ability to capitalise on this new position.
In Australia, revenues have also decreased, primarily due to a reduction in demand in some of the Group's key private sector clients. We have also replaced the previous managing director, and founder, of our locum doctor business in New South Wales, who expressed a desire to retire for personal reasons. This has had a short term impact on the results of that business; however, the new managing director is refocusing and expanding the business nationally. The Board continues to believe that this business has significant potential to grow as it is rolled out across the other states. In addition, we are targeting growth in the Nursing Agency by improving our market penetration in the eastern states and widening our client base in the public sector in the states where private sector demand has significantly dropped.
The Group had a cash balance at 1 July 2012 of GBP9.6m (31 December 2011: GBP14.2m) and net debt of GBP30.9m (31 December 2011: GBP26.0m). The Group continues to enjoy the support of the Australian banks which have provided a GBP39.3m loan facility. Owing to the lower than anticipated level of trading this year, the banks have agreed to reset the financial covenants and have agreed to defer the start of the principal repayments due under the loan facility until June 2013. In light of recent trading, the Board will continue to review the Group's funding requirements in the medium term.
Litigation
As reported to shareholders on 22 June 2012, the claims of the former Executive Vice Chairman, Kate Bleasdale, heard by the London Central Employment Tribunal failed on all counts and her dismissal was held to be non-discriminatory and fair. Ms Bleasdale subsequently asked the Employment Judge for a review of the decision but, after consideration, this review application was also declined. Ms Bleasdale has now made an appeal application to the Employment Appeal Tribunal which should decide in the next few weeks whether to let the appeal proceed beyond an initial review of her application to a full hearing of the Appeal Tribunal. On the basis of legal advice received and the judgements to date, the Board believes the claims are unfounded and, therefore, there is no liability or probable cash outflow for the Group, other than legal costs in defending the appeal, if her application for a hearing should be successful.
In respect of US-based proceedings against the Company and certain of the ex-directors, the Company reported on 14 August 2012 that its legal advisers had written to the Plaintiffs' US counsel confirming that the Company did not propose to participate in the US proceedings and informed them that, if they wished to pursue a claim, they should do so in the proper jurisdiction, namely, the English High Court of Justice. The Plaintiffs' US counsel was also informed that the Board considered the underlying claim to be wholly without merit and that if proceedings were commenced in the proper forum they would be strenuously defended.
The Company is confident of its position and no provision has been made in these accounts for future legal costs or for any settlement or adverse determination arising from the litigation.
Dividends
The Board has not approved a dividend as the Company has negative distributable reserves and our banking arrangements prohibit the declaration of dividends until the amount outstanding under the loan facility has been reduced to under GBP35.0m. The Board does recognise, however, that dividends should form part of shareholder returns and will work towards the reintroduction of dividend payments as soon as possible.
Current Trading
Since the end of the first half we have seen revenues increase in Australia, reflecting the seasonality in that market, however the weakness in demand in both the private and public sectors continues. In the UK there is still general uncertainty in the market and delays in the renewal of the NHS frameworks continue. This is having the greatest impact on our Doctors and Allied Health Professionals divisions.
Outlook
Whilst delays in the NHS framework renewal procurement have adversely impacted our ability to generate UK revenue growth in the short term, the Board remains confident that its strategy of aligning the Group with the needs of its customers will enable it to grow its position in this market and drive future growth.
Although macro-economic uncertainty in Australia has recently slowed demand, there remain significant opportunities for us to increase our market share within our existing markets in the current environment.
Customer reaction to our managed solution proposition, HCL Clarity, has been very encouraging in both the UK and Australia, confirming our view that this ability to drive efficiencies and cost savings for hospitals, healthcare trusts and health authorities is a key demand of our customers.
There remain a number of risks and challenges, including the outcome of the outstanding litigation and the sufficiency of funding in the medium term; however, the business has strong support from its bankers and other stakeholders and the Board believes that the Group will prosper as the initiatives that have been undertaken to set the business up for future sustainable growth begin to deliver results.
Peter Sullivan
Chairman
27 September 2012
OPERATING AND FINANCIAL REVIEW
Progress against Strategy
UK
-- Customer Relationship Management: HCL's NHS supply is now predominantly delivered through framework agreements and the business is fully aligned with our customers' vision and interests.
-- Managed Services: We are expecting to sign contracts to implement HCL Clarity as a managed solutions pilot in two Acute NHS Trusts in Q4 2012. This will give us two excellent reference sites to demonstrate the savings our solutions can deliver when used to manage the workforce and agency spend more effectively.
-- Organic Growth and Operational Improvement: Invoiced hours have increased significantly in Locum Doctors and General Nursing compared with H2 2011. Our IT front office and compliance system implementation is on plan, with the last division due to go live early in 2013. Our brand rationalisation plan is also proceeding on schedule and the UK business will start 2013 with a far simpler and more transparent legal and organisational structure.
-- People Development: HCL's core values have been developed to underpin the on-going process of building a strong brand and differentiating ourselves in the market.
Australia
-- Managed Services: We have started the marketing of HCA Clarity to key clients in the public and private sectors and the feedback from our initial presentations has been positive.
-- Organic Growth and Operational Improvement: Senior management changes have meant that we have yet to fully achieve our objectives in growing the geographic footprint of our medical locums business outside of New South Wales (NSW).
We have completed the national roll out of NursEd, our education business, and all offices now include state of the art training facilities that are being used to support our nurses with their CPD (continuing professional development) requirements. As a result of this initiative, we have significantly increased the number of our active nurses who are immediately employable. We have also made excellent progress in increasing the number of new nurses registering with HCA, although converting such individuals to working regularly is taking longer than anticipated and this remains an ongoing focus within the nursing agency business.
During the first six months of the year, we have made a number of changes to the way in which the nursing agency conducts business, including the relocation of our NSW and Western Australia (WA) operations centres from Adelaide to Sydney and Perth. We believe these changes will increase client and candidate intimacy and improve productivity.
-- People Development: HCA has been actively involved in the development of the Group's core values which will underpin our development in Australia.
First Half Trading Performance
UK
The table below summarises the trading performance in the UK over the last 18 months as the business has moved to become a framework supplier to the NHS, accepting lower margins in return for the potential of significantly higher volumes:
2011 H1 2011 H2 2012 H1 Unaudited Unaudited Unaudited GBP'm GBP'm GBP'm Revenue 60.0 50.3 45.2 Gross Profit 14.7 11.3 10.0 Gross Profit % 24.5% 22.5% 22.1% Operating expenses (excluding depreciation, amortisation and share based payments or credits) (14.5) (14.3) (12.2) ---------- ---------- ---------- Adjusted EBITDA - UK 0.2 (3.0) (2.2) ---------- ---------- ----------
An analysis of these results by division is given below:
REVENUE GROSS PROFIT CONTROLLABLE CONTRIBUTION 2011 2011 2012 2011 2011 2012 2011 2012 H1 H2 H1 H1 H2 H1 H1 2011 H2 H1 Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Restated Restated Restated GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm Locum Doctors 13.7 11.8 12.0 2.1 1.6 1.7 0.6 0.2 0.6 Locum Nursing 14.4 10.8 10.1 4.0 2.9 3.0 2.8 1.8 1.8 Locum Allied Health Professionals 16.5 14.1 11.1 4.7 3.5 2.6 2.8 1.6 1.3 Locum Qualified Social Workers 14.2 12.3 11.2 2.5 2.1 1.9 0.4 1.0 0.8 Permanent Placements 1.4 1.2 0.8 1.4 1.2 0.8 0.2 0.1 (0.1) Inter-Segment (0.2) 0.1 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total UK 60.0 50.3 45.2 14.7 11.3 10.0 6.8 4.7 4.4 ---------- ---------- ---------- ---------- ---------- ---------- Central costs (excluding depreciation, amortisation and share-based payments or credits) (6.6) (7.7) (6.6) ---------- ---------- ---------- Adjusted EBITDA - UK 0.2 (3.0) (2.2) ---------- ---------- ----------
Controllable contribution represents the gross profit of each division less its direct costs. Central costs includes the costs of all shared services, such as business development, marketing, finance, IT etc. and also includes Group costs which were GBP1.5m in H1 2012. Central costs were lower in H1 2012 than in H2 2011 owing, inter alia, to GBP0.5m of savings from the closure of the Loughton site.
During 2011, placement of theatre nurses, which was previously included within Allied Health Professionals, was moved to the Nursing segment. The H1 2011 and H2 2011 comparatives above and elsewhere in this report have been restated to be consistent with the current reporting structure.
Locum Doctors
% of UK Gross Profit in 2012 H1: 17%
2011 H1 2011 H2 2012 H1 Unaudited Unaudited Unaudited Restated GBP'm GBP'm GBP'm Revenue 13.7 11.8 12.0 Gross Profit 2.1 1.6 1.7 Gross Profit % 15.3% 13.6% 14.2% Controllable Contribution 0.6 0.2 0.6
The division has achieved the successful transition to framework supply which accounted for over 90% of hours invoiced in H1 2012 compared with 50% in the same period in 2011. The number of hours invoiced in H1 2012 was only 2% below that in H1 last year and was up 10% on H2. Q2 2012 was the highest quarterly level of hours invoiced since Q1 2011 and a significant improvement on Q2 2011. The previously reported and on-going delay to the re-tendering of the GPS Medical Locums national framework has affected the timing of our ability to secure new contracts at a Trust level. However, we believe the division is well positioned to grow its market share once the new framework contract is in place.
Locum Nursing
% of UK Gross Profit in 2012 H1: 30%
2011 H1 2011 H2 2012 H1 Unaudited Unaudited Unaudited Restated GBP'm GBP'm GBP'm Revenue 14.4 10.8 10.1 Gross Profit 4.0 2.9 3.0 Gross Profit % 27.8% 26.9% 29.7% Controllable Contribution 2.8 1.8 1.8
MPS in Wales has consolidated its leading position as the key supplier of Nurses and experienced Health Care Support Workers on the All Wales Agency Project.
Our general nursing business in England has performed strongly, increasing invoiced hours by 11% on H1 2011 and 34% on H2 2011 whilst maintaining steady margins. There is good demand in the market and the quality of our supply capability has enabled us to achieve this growth. Unfortunately overall growth has been held back by slippage in theatre nursing, where invoiced hours were 50% below H1 2011 and 25% below H2 2011, as we continued to restructure the division and move to framework supply. We have now completed this internal process, albeit more slowly than planned, and expect the volumes to grow on a sequential basis.
Locum Allied Health Professionals
% of UK Gross Profit in 2012 H1: 26%
2011 H1 2011 H2 2012 H1 Unaudited Unaudited Unaudited Restated GBP'm GBP'm GBP'm Revenue 16.5 14.1 11.1 Gross Profit 4.7 3.5 2.6 Gross Profit % 28.5% 24.8% 23.4% Controllable Contribution 2.8 1.6 1.3
Further to the relocation of the AHP business to London from Essex, we have restructured the organisation and moved our NHS business to framework supply, reducing the gross margin as forecast and confirming our position with the NHS as a key framework supplier across all medical and clinical functions. We believe that this strategy will give us the opportunity to generate higher volumes now that the restructure has been completed. H1 2012 invoiced hours were 29% below H1 2011 and 19% below H2 2011.
Locum Qualified Social Workers
% of UK Gross Profit in 2012 H1: 19%
2011 H1 2011 H2 2012 H1 Unaudited Unaudited Unaudited Restated GBP'm GBP'm GBP'm Revenue 14.2 12.3 11.2 Gross Profit 2.5 2.1 1.9 Gross Profit % 17.6% 17.1% 17.0% Controllable Contribution 0.4 1.0 0.8
The positive performance at the controllable contribution level against H1 2011 resulted from the reorganisation completed in mid 2011, however the market for social workers remains difficult with Local Authorities under severe budget pressure and margins continue to be squeezed. H1 2012 invoiced hours were 21% below H1 2011 and 11% below H2 2011.
Permanent Placements
% of UK Gross Profit in 2012 H1: 8%
2011 H1 2011 H2 2012 H1 Unaudited Unaudited Unaudited Restated GBP'm GBP'm GBP'm Revenue 1.4 1.2 0.8 Gross Profit 1.4 1.2 0.8 Gross Profit % 100.0% 100.0% 100.0% Controllable Contribution 0.2 0.1 (0.1)
This division has been refocused on Medical and Nursing vacancies within the UK and we continue to make progress in developing our private and NHS customer base.
Australia
The table below summarises the trading performance in Australia over the last 18 months. This excludes the results of the Homecare Division which was sold in July 2011.
2011 H1 2011 H2 2012 H1 Unaudited Unaudited Unaudited GBP'm GBP'm GBP'm Revenue 56.8 60.0 55.9 Gross Profit 11.6 12.1 10.7 Gross Profit % 20.4% 20.2% 19.1% Operating expenses (excluding depreciation and amortisation) (8.1) (7.7) (9.3) Adjusted EBITDA - Australia 3.5 4.4 1.4 ---------- ---------- ----------
Total revenues were down GBP0.9m compared with H1 2011 owing primarily to a softening in demand in the private sector. The mix of business also changed in H1 2012 with a greater proportion coming from the aged care sector. Both these factors led to a reduction in gross margin percentage. Operating expenses increased over H1 2011 reflecting the investment made in additional heads to support growth.
The results for H2 2011 in the table above have been revised to correct for a GBP0.8m misclassification between depreciation and administrative expense in the table included in the Operational Review section of the Annual Report and Financial Statements for the year ended 31 December 2011.
Nursing Agency
% of Australia Gross Profit in 2012 H1: 88%
During the first half of the year, demand has softened, most significantly within the private sector but also, towards the end of the period, within the public sector. However, with a general shortage of nurses, demand still exceeds the agency's ability to supply, even though great progress has been made in increasing the number of useable and active nurses on the database as a result of the increased candidate generation marketing activities and the new HCA website launched in 2011. The challenge remains our ability to convert newly registered nurses into working nurses and this remains a key area of focus presently, including a re-engineering of the business model in some States.
Our drive to secure greater market share and critical mass in the Eastern Seaboard States of NSW, Victoria (VIC) and Queensland (QLD) has continued. Excellent progress has been achieved in QLD and whilst NSW has grown over the prior year comparative, progress has been less pronounced. Our VIC business has suffered due to its historic greater exposure to the private sector.
We have continued to develop and grow our share of the aged care agency nursing sector and have been successful in securing panel agreements on a State and national basis during the period. We have also succeeded in leveraging these client relationships with the permanent nursing business.
At the end of the period we implemented a number of redundancies within the business as part of our ongoing operational efficiency review.
Locum Doctors
% of Australia Gross Profit in 2012 H1: 9%
Whilst the market remains positive, the loss of senior personnel and difficulties in recruiting appropriately experienced and qualified consultants to drive the roll out of the Locum Doctors business nationaly, has resulted in the business trading below plan for the first half.
We have now appointed an experienced Managing Director from outside the business and continue to believe that this sector represents a significant growth opportunity for us.
The business has now been co-located within the new Sydney Head Office and we are hopeful that there will be operational benefits arising from the business being located alongside the nursing agency and permanent nurse recruitment businesses.
Permanent Nurse Recruitment
% of Australia Gross Profit in 2012 H1: 3%
Nurse Jobs Australia ("NJA") continues to progress in line with our plans and has been successful in placing candidates sourced both domestically and from the international sourcing teams located in the UK and in New Zealand.
People
In the first half of the year our leadership teams in the UK and Australia embarked on an engagement programme with staff throughout the business to establish a shared set of corporate values and common strategies. The two regions unanimously settled upon five core values to deliver seven universal objectives. We are now working to ensure these values are embedded in our everyday business lives and shape all that we strive to achieve.
Our Values
-- we do what we say we will do with integrity, professionalism and without compromise.
-- we ensure excellence in everything that we do in order to deliver the highest level of patient care.
-- our open, vibrant and collaborative culture builds genuine relationships, delivers outstanding customer service and provides a rewarding place to work.
-- we create market leading healthcare recruitment solutions by driving innovation and expertise to adapt to the needs of our clients, candidates and patients.
-- our diverse and talented team continually evaluate everything we do to ensure a flexible, successful, sustainable business both today and tomorrow.
Our Objectives
-- To focus on organic revenue and profit growth.
-- To deliver value for money solutions to clients that enable them to maximise the quality of care delivered to patients and end users.
-- To keep compliance and clinical governance at the heart of our service to both clients and candidates.
-- To be the agency of choice for candidates and supplier of choice for our clients. -- To utilise leading edge technology to provide innovative and measureable solutions.
-- To create a development culture where employees have the opportunity to develop themselves and their careers.
-- To build employee engagement and deliver an outstanding and consistent customer experience.
Group Results
The Group results for the 26 weeks ended 1 July 2012 are set out below:
2012 H1 2011 H1 2011 Year Unaudited Unaudited Audited Restated GBP'm GBP'm GBP'm Revenue 101.1 116.8 227.1 Cost of sales (80.4) (90.5) (177.4) ---------- ---------- ---------- Gross profit 20.7 26.3 49.7 Gross profit % 20.5% 22.5% 21.9% Administrative expenses (21.5) (22.6) (44.6) ---------- ---------- ---------- Adjusted EBITDA* (0.8) 3.7 5.1 Depreciation of property, plant and equipment** (0.4) (0.5) (1.0) Amortisation of intangible assets** (2.8) (3.1) (5.7) Share scheme credits - 0.5 0.5 ---------- ---------- ---------- Adjusted (loss)/profit from operations (4.0) 0.6 (1.1) Highlighted items: Net exceptional operating expenses (0.8) (7.4) (9.6) ---------- ---------- ---------- Loss from operations (4.8) (6.8) (10.7) Finance expense (net) (2.7) (12.1) (2.2) ---------- ---------- ---------- Loss before tax (7.5) (18.9) (12.9) Taxation 1.8 1.4 2.6 ---------- ---------- ---------- Loss after tax from continuing operations (5.7) (17.5) (10.3) Profit from discontinued operations, net of tax - 1.0 1.4 ---------- ---------- ---------- Loss for the period (5.7) (16.5) (8.9) ---------- ---------- ---------- Basic loss per share from continuing operations (pence) (0.7)p (15.4)p (3.1)p ---------- ---------- ---------- Adjusted basic loss per share from continuing operations (pence) (0.6)p (8.6)p (3.7)p ---------- ---------- ---------- * Adjusted EBITDA is earnings before depreciation, amortisation, interest and tax and before highlighted operating expenses and share-based payments charges or credits ** Continuing operations only
Restatement of results
As detailed in Note 5, the results for the six months ended 30 June 2011 have been restated to reflect the prior year adjustments reported in the audited Annual Report and Financial Statements for the year ended 31 December 2011.
The results for the year ended 31 December 2011 have also been revised in the table above to correct a GBP0.8m misclassification between depreciation and administrative expense in the table included in the Financial Review section of the Annual Report and Financial Statements for the year ended 31 December 2011.
Cashflow
Cash generated from operations in the period was an outflow of GBP1.1m reflecting primarily the Adjusted EBITDA loss of GBP0.8m, net exceptional operating expenses of GBP0.8m and GBP0.6m generated from working capital.
The decrease in cash and cash equivalents for the period was GBP4.6m, reflecting the outflow of GBP1.1m from operations, a GBP2.7m outflow from investing activities (including capital expenditure of GBP1.2m and settlement of deferred consideration of GBP1.4m) and a GBP0.8m payment of interest.
Borrowings
The Group's net borrowings at 1 July 2012 are analysed below:
31 December 1 July 2012 2011 Unaudited Audited GBP'm GBP'm Loans - principal amounts: Australian Dollar denominated (39.3) (39.5) Zero Coupon Loan Notes due 2021 (principal amount GBP10.2m) (2.8) (2.6) Unamortised loan fees 1.9 2.3 Obligations under finance leases (0.3) (0.4) ----------- ----------- (40.5) (40.2) Cash and cash equivalents 9.6 14.2 ----------- ----------- Net debt (30.9) (26.0) ----------- -----------
Since 1 July 2012 the Banks have agreed to reset the financial covenants in the Syndicated Facility Agreement and to defer the start of the principal repayments until June 2013.
Going Concern
The Group's business activities, together with the factors likely to affect its future development, performance and financial position are set out in the Chairman's Statement and the Operating and Financial Review. The financial position and borrowing facilities are described above. Principal risks and uncertainties are described below. In addition, the Group has certain contingent liabilities, as described in Note13 to the unaudited condensed consolidated interim financial information.
The Group prepares regular business forecasts and monitors its projected cash flow requirements. These forecasts are reviewed by the Board. These forecasts are then flexed to reflect more conservative views on revenues and margins, and take into account management actions which could be taken to contain costs in these circumstances. These forecasts indicate that the Group plans to operate within its current bank facilities and its new financial covenants for the foreseeable future, being a period of at least twelve months from the date of approval of this interim financial information, albeit with a narrow margin for contingencies. The forecasts, however, assume no liability in respect of the Kate Bleasdale legal action or in respect of the US litigation during the review period, nor in respect of any of the other contingent liabilities described in Note 13.
As noted in the Chairman's statement, the Group's banks and loan providers, who receive regular information on the progress of the Group, its plans and forecasts and their risks, continue to express their support for the Group. Accepting that the Group's growth has been impacted by a number of external factors this year, the banks have agreed to reset the financial covenants in the Syndicated Facility Agreement for the periods to 30 June 2013 and have agreed to defer the start of the principal repayments until that date. It is anticipated that new covenants will be set for the period ending 30 September 2013 (and the periods thereafter) in the first quarter of next year, following the presentation of the Group's 2013 budgets to the banks.
If the Group identifies opportunities in the market which lead to growth rates in excess of those in its forecasts then the Board may need to consider additional sources of funding to supplement the current bank arrangements, whether additional facilities or equity. If the difficult market conditions continue, and the Group is unable to deliver its forecasts, or if there is an adverse outcome in respect of one of the items of litigation, then more funding may also be required.
The Directors recognise that the combination of these circumstances represents material uncertainty which could cast significant doubt upon the Company's ability to continue as a going concern in which event the Company may be unable to realise its assets and discharge its liabilities in the normal course of business. Nevertheless, after making enquiries and considering the uncertainties described above and the expressions of support from the Group's banks and loan providers, the Directors have a reasonable expectation that the Group will have access to adequate resources to continue in operational existence for the foreseeable future. For these reasons they continue to adopt the going concern basis of accounting in preparing the unaudited condensed consolidated interim financial information.
Treasury management, currency risk and other principal risks and uncertainties affecting the business
The key risks to which the business is exposed are reviewed regularly by senior management and the Board as a whole.
The main functional currencies of the Group are Sterling and Australian Dollars. The Group has significant operations in Australia and as such is exposed to movements in exchange rates. The Group's bank debt, however, is denominated in Australian Dollars and gives a partial natural hedge against translation effects on profits and net assets.
The other major risks that the business faces are consistent with those set out in the Company's Annual Report and Financial Statements for the year ended 31 December 2011, a copy of which is available on the Group's website at www.hclplc.com. These risks relate to relationships with key customers, potential impact from past events, the availability of finance, reliance on IT systems and security, compliance, the availability of suitably qualified locums and other business model risks such as market demand, recruitment and retention of consultants and the associated tax legislation risks associated with self-employed staff, VAT and the use of umbrella companies for the supply of agency staff.
These risks are managed, inter alia, by close monitoring of key relationships by management, regular updates to the Board on legacy issues, monitoring profit and cash forecasts to ensure compliance with bank requirements, maintaining close and transparent relationships with the banks, regular reviews of IT strategy by the Board, maintaining an independent compliance function to review performance and make recommendations for improvements (to the operational teams and to the Board), investment in marketing to attract suitable locums and day-to-day assessment of other business model risks by the executive team - also reported regularly to the Board.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
-- the condensed set of consolidated financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU;
-- the interim report includes a fair review of the following information:
(a) an indication of important events that have occurred during the first six months of the financial year and their impact on the unaudited condensed set of consolidated financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b) related party transactions that have taken place in the first six months of the current financial year that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.
By order of the Board
Stephen Burke Sue Bygrave Chief Executive Officer Chief Finance Officer
27 September 2012
Condensed Consolidated Statement of Comprehensive Income
For the 26 weeks ended 1 July 2012 ----------------------------------------- ------ ---------- ------------ ------------- Restated(1) 26 weeks six months ended ended Year ended 1 July 30 June 31 December 2012 2011 2011 Unaudited Unaudited Audited Notes GBPm GBPm GBPm ----------------------------------------- ------ ---------- ------------ ------------- Revenue 6 101.1 116.8 227.1 Cost of sales (80.4) (90.5) (177.4) Gross profit 6 20.7 26.3 49.7 Operating expenses (24.7) (25.7) (50.8) Highlighted items: Net exceptional operating expenses 7 (0.8) (7.4) (9.6) ---------- ------------ ------------- Total operating expenses (25.5) (33.1) (60.4) ---------- ------------ ------------- Loss from operations (4.8) (6.8) (10.7) Finance income 8 0.1 0.5 24.5 Finance expense 8 (2.8) (12.6) (26.7) ---------- ------------ ------------- Loss before taxation from continuing operations (7.5) (18.9) (12.9) Tax benefit from continuing operations 9 1.8 1.4 2.6 ---------- ------------ ------------- Loss for the period from continuing operations (5.7) (17.5) (10.3) Profit for the period from discontinued operations, net of tax 10 - 1.0 1.4 Loss for the period attributable to owners of the parent (5.7) (16.5) (8.9) ---------- ------------ ------------- Other comprehensive income: Translation adjustment (0.1) (0.1) 0.3 Total other comprehensive (loss)/income (0.1) (0.1) 0.3 ----------------------------------------- ------ ---------- ------------ ------------- Total comprehensive loss for the period (5.8) (16.6) (8.6) ----------------------------------------- ------ ---------- ------------ ------------- Loss per share attributable to the owners of the parent Basic and diluted - continuing business (pence) 11 (0.7) (15.4) (3.1) Adjusted basic and diluted - continuing business (pence) 11 (0.6) (8.6) (3.7) Basic and diluted - discontinued business (pence) 11 - 0.9 0.4 ----------------------------------------- ------ (1)The results for the six months ended 30 June 2011 have been restated for the revised impairment of goodwill and other assets in the UK Social Care division reported as a prior year adjustment in the audited financial statements for the year ended 31 December 2011. Net exceptional operating expenses and exceptional finance costs and income have been reclassified to be consistent with the classification of exceptional costs and income reported in the year ended 31 December 2011. The results of the discontinued operation have been adjusted to cease depreciating assets on 31 March 2011, the date the business was classed as held for disposal. Further information on the prior year adjustments is given in Note 5.
The Notes are an integral part of these Unaudited Interim Financial Statements
Condensed Consolidated Statement of Financial Position
As at 1 July 2012 ------------------------------------------- ----- ---------- ------------ Restated(1) 1 July 30 June 31 December 2012 2011 2011 Unaudited Unaudited Audited Note GBPm GBPm GBPm ------------------------------------------- ----- ---------- ------------ ------------ ASSETS Non-current assets Goodwill 39.7 38.9 39.8 Other intangible assets 51.0 58.4 53.9 Property, plant and equipment 2.8 2.1 2.0 93.5 99.4 95.7 ---------- ------------ ------------ Current assets Trade and other receivables 26.3 32.3 29.9 Current tax receivable 3.8 3.6 3.0 Cash and cash equivalents 9.6 3.3 14.2 ---------- ------------ ------------ 39.7 39.2 47.1 Net assets classified as held for sale 10 - 20.1 - ---------- ------------ ------------ 39.7 59.3 47.1 ---------- ------------ ------------ Total assets 133.2 158.7 142.8 ------------------------------------------- ----- ---------- ------------ ------------ LIABILITIES Current liabilities Trade and other payables (24.0) (31.4) (25.5) Borrowings: Current portion of long term borrowings (2.2) (123.6) (0.9) Derivative financial liabilities (1.7) (2.4) (1.7) Deferred consideration - (3.8) (1.5) Provisions (2.0) (1.7) (2.7) (29.9) (162.9) (32.3) ---------- ------------ ------------ Non-current liabilities Borrowings (38.3) (0.3) (39.3) Deferred tax liability (8.2) (10.4) (9.2) Provisions (2.7) (4.4) (2.1) (49.2) (15.1) (50.6) ---------- ------------ ------------ Total liabilities (79.1) (178.0) (82.9) ------------------------------------------- ----- ---------- ------------ ------------ TOTAL NET ASSETS / (LIABILITIES) 54.1 (19.3) 59.9 ------------------------------------------- ----- ---------- ------------ ------------ SHARE CAPITAL AND RESERVES ATTRIBUTABLE TO THE OWNERS OF THE PARENT Share capital 84.8 11.3 84.8 Share premium reserve 55.2 45.3 55.2 Share option reserve 1.2 4.2 1.2 Translation reserve - (0.3) 0.1 Retained earnings (87.1) (79.8) (81.4) TOTAL EQUITY 54.1 (19.3) 59.9 ------------------------------------------- ----- ---------- ------------ ------------ (1) Restated as reported in Note 5.
The Notes are an integral part of these Unaudited Interim Financial Statements
Condensed Consolidated Statement of Cash Flows
For the 26 weeks ended 1 July 2012 ------------------------------------------------ ---------- ------------ ------------- Restated(1) 26 weeks six months ended ended Year ended 1 July 30 June 31 December 2012 2011 2011 Unaudited Unaudited Audited GBPm GBPm GBPm ------------------------------------------------ ---------- ------------ ------------- Cash flows from operating activities Loss for the year (5.7) (16.5) (8.9) Adjustments for: Discontinued operation - - (1.4) Loss / (gain) on fair value changes in contingent consideration (0.1) 4.1 2.9 Depreciation of property, plant and equipment 0.4 0.5 1.1 Amortisation of intangible assets 2.8 3.3 6.4 Gain on disposal of fixed assets - (0.1) - Foreign exchange gain on operating activity - - (0.4) Finance income (0.1) (0.1) (24.5) Finance expense 2.8 13.0 26.7 Share based payments charges - (0.5) (0.5) Corporation tax credit (1.8) (1.2) (2.6) ------------------------------------------------ ---------- ------------ ------------- Cash flows from operating activities before changes in working capital (1.7) 2.5 (1.2) Changes in receivables 4.5 2.1 2.8 Changes in payables (3.9) (4.4) (1.8) ------------------------------------------------ ---------- ------------ ------------- Cash generated from operations (1.1) 0.2 (0.2) Corporation tax paid (net) - (2.9) (2.5) ---------- ------------ ------------- Net cash flows from operating activities (1.1) (2.7) (2.7) ------------------------------------------------ ---------- ------------ ------------- Investing activities Interest received 0.1 - 0.1 Disposal of Homecare division - - 20.3 Disposal of property, plant and equipment - - 0.4 Contingent and deferred consideration paid (1.4) (0.9) (2.6) Capital element of lease payments (0.2) - (0.5) Acquisition of property, plant and equipment (1.0) (0.2) (0.7) Acquisition of intangible assets (0.2) - (0.4) Net cash (used in) / received from investing activities (2.7) (1.1) 16.6 ------------------------------------------------ ---------- ------------ ------------- Financing activities Issue of ordinary shares - - 56.2 New loans acquired - 6.9 11.5 Loans repaid - (0.2) (59.0) Interest and similar expenses paid (0.8) (4.2) (11.2) Loan fees - (4.6) (5.5) Dividends paid to the owners of the parent - (2.1) (2.1) Net cash used in financing activities (0.8) (4.2) (10.1) ------------------------------------------------ ---------- ------------ ------------- Net (decrease) / increase in cash and cash equivalents (4.6) (8.0) 3.8 Cash and cash equivalents (including short-term borrowings) at the beginning of the year 14.2 10.5 10.5 Effect of exchange rates on cash and cash equivalents - 0.8 (0.1) Cash and cash equivalents (including short-term borrowings) at the end of the period 9.6 3.3 14.2 ------------------------------------------------ ---------- ------------ ------------- (1) Restated as reported in Note 5.
The Notes are an integral part of these Unaudited Interim Financial Statements
Condensed Consolidated Statement of Changes in Equity
Share Share Share option Translation Retained capital premium reserve reserve earnings Total Note GBPm GBPm GBPm GBPm GBPm GBPm -------------------------------- ----- --------- --------- --------- ------------ ---------- ------- Balance at 1 January 2011 as reported 11.3 45.3 4.7 (0.2) (54.5) 6.6 Prior period adjustments as reported in Note 1 of the December 2011 audited Financial Statements: Goodwill - - - - 4.8 4.8 Other intangible assets - - - - (1.4) (1.4) Property, plant and equipment - - - - (0.3) (0.3) Trade and other receivables - - - - 0.8 0.8 Deferred tax - - - - (10.6) (10.6) --------- --------- --------- ------------ ---------- ------- Balance at 1 January 2011 (restated) 11.3 45.3 4.7 (0.2) (61.2) (0.1) Loss for the period as reported - - - - (17.1) (17.1) Prior year adjustments for the period 5 - - - - 0.6 0.6 Other comprehensive income - - - (0.1) - (0.1) Dividends - - - - (2.1) (2.1) Debit in respect of share scheme credits - - (0.5) - - (0.5) --------- --------- --------- ------------ ---------- ------- Unaudited balance at 30 June 2011 (restated) 11.3 45.3 4.2 (0.3) (79.8) (19.3) --------- --------- --------- ------------ ---------- ------- Balance at 1 January 2011 (restated as above) 11.3 45.3 4.7 (0.2) (61.2) (0.1) Loss for the year - - - - (8.9) (8.9) Other comprehensive income for the year - - - 0.3 - 0.3 Dividends - - - - (2.1) (2.1) Issue of share capital 73.5 9.9 - - (2.3) 81.1 Gain on Ares Lux debt for equity swap - - - - (9.9) (9.9) Warrants lapsed during the year - - (2.7) - 2.7 - Amortisation of warrants - - (0.3) - 0.3 - Debit in respect of share scheme credits - - (0.5) - - (0.5) --------- --------- --------- ------------ ---------- ------- Balance at 31 December 2011 84.8 55.2 1.2 0.1 (81.4) 59.9 Loss for the period - - - - (5.7) (5.7) Other comprehensive income - - - (0.1) - (0.1) Unaudited balance at 1 July 2012 84.8 55.2 1.2 - (87.1) 54.1 --------- --------- --------- ------------ ---------- -------
The Notes are an integral part of these Unaudited Interim Financial Statements
Notes to the unaudited condensed consolidated interim financial statements
for the 26 weeks ended 1 July 2012.
1. General Information
Healthcare Locums plc is a public limited company incorporated and domiciled in England with company number 04736913. The Company is listed on the Alternative Investment Market (AIM), a sub-market of the London Stock Exchange.
Copies of this interim report are available from the registered office: 10 Old Bailey, London EC4M 7NG, and may be viewed on the HCL website www.hclplc.com.
This unaudited condensed consolidated interim financial information was approved for issue on 27 September 2012. This unaudited condensed consolidated interim financial information does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006, and it has been neither audited nor reviewed by the Company's Independent Auditors. Statutory accounts for the year ended 31 December 2011 were approved by the Board of Directors on 13 April 2012 and delivered to the Registrar of Companies.
The financial information for the year ended 31 December 2011 has been derived from the statutory accounts for that year and the financial information for the period ended 30 June 2011 has been derived from the unaudited condensed consolidated interim financial information for that period, amended for the effect of restatements described in Note 5.
The auditor's report on the statutory accounts for the year ended 31 December 2011 included:
-- a qualification in respect of a limitation in scope relating to whether a GBP5.2m impairment of Information Technology systems booked in 2010 should have been booked earlier. There was no financial effect on the Consolidated Statement of Financial Position as at 31 December 2011 or 2010 or on the Consolidated Statement of Comprehensive Income for the year ended 31 December 2011;
-- emphasis of matter paragraphs drawing attention to a material uncertainty which may cast significant doubt about the company's ability to continue as a going concern, and material uncertainty relating to material claims; and
-- a statement under s498 (3) Companies Act 2006 (failure to obtain information and explanations) with respect to the limitation of scope above.
2. Basis of Preparation
These unaudited condensed consolidated interim financial statements for the 26 weeks ended 1 July 2012 have been prepared in accordance with IAS 34, 'Interim Financial Reporting' as adopted by the European Union and issued by the International Accounting Standards Board ("IASB"). The unaudited condensed consolidated interim financial statements are presented on a condensed basis as permitted by IAS 34 and therefore do not include all disclosures that would otherwise be required in a full set of financial statements and should be read in conjunction with the 2011 Annual Report.
The change of reporting period from a six month calendar period was announced on 29 June 2012. In the first year the accounting period begins on 1 January and ends on the Sunday at the end of the sixth and twelfth management reporting periods, i.e. 1 July 2012 and 30 December 2012. In future years interim reports will always be for 26 week periods and annual reports either for 52 or 53 week periods.
3. Accounting Policies
The accounting policies applied in preparing this financial information are consistent with the Group's financial statements for the year ended 31 December 2011 except in relation to the mandatory adoption of the following amendments to existing accounting standards:
-- IFRS 1 (amended) "Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters" which is effective for accounting periods commencing after 30 June 2011;
-- IFRS 7 (amended) "Disclosures: Transfers of Financial Assets" which is effective for accounting periods commencing after 30 June 2011; and
-- IAS 12 (amended) "Deferred tax: Recovery of Underlying Assets" which is effective for accounting periods commencing after 31 December 2011.
None of the above had any significant impact on the Group's results or financial position.
The preparation of unaudited condensed consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. Taxes on income in the interim period are accrued using the tax rate that would be applicable to expected total annual earnings for 2012.
In preparing these unaudited condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2011.
As noted in the Chairman's Statement and discussed in detail in the Going Concern section of the Operating and Financial Review, there are material uncertainties which may cast significant doubt on the Group's ability to continue as a going concern. Nevertheless after making enquiries, the Directors have formed a judgement, at the time of approving these unaudited condensed consolidated interim financial statements that there is a reasonable expectation that the Group will have access to adequate resources to continue in existence for the foreseeable future, a period of not less than 12 months. For this reason the Directors have continued to adopt the going concern basis in preparing these unaudited condensed consolidated financial statements.
4. Seasonality
The Group's activities are not subject to significant seasonal variation.
5. Prior Year Adjustments
In preparing these unaudited condensed consolidated financial statements the comparative figures for the six months ended 30 June 2011 have been restated, taking into account the adjustments identified during the preparation of the financial statements for the year ended 31 December 2011.
The nature of the adjustments and the unaudited impact on the reported loss from operations and loss for the six months ended 30 June 2011 may be summarised as follows:
Profit Loss Loss from Net finance from discontinued for the operations expense Tax benefit operations period GBPm GBPm GBPm GBPm GBPm ------------ ------------ ------------ ------------------- --------- As previously reported (9.2) (9.8) 1.2 0.7 (17.1) Reclassification of exceptional operating expense to exceptional finance expense 2.3 (2.3) - - - Amortisation impact on Social Care Division of the impairment of intangible assets at 31 December 2010 0.1 - - - 0.1 Impact of stopping depreciation and amortisation of the assets of the Homecare business at 31 March 2011 - - - 0.3 0.3 Correction of tax benefit - - 0.2 - 0.2 Restated six months to 30 June 2011 (6.8) (12.1) 1.4 1.0 (16.5) ----------------------------------- ------------ ------------ ------------ ------------------- ---------
The adjustments above relate to:
(a) Exceptional costs reclassified to be consistent with the classification in the Consolidated Statement of Comprehensive Income for the year ended 31 December 2011;
(b) Depreciation and amortisation adjusted for the impact of impairing the assets of the Social Care business in the United Kingdom as at 31 December 2010; and
(c) Cessation of depreciation of the assets of the discontinued operation at the time, 31 March 2011, the business was classified as held for disposal.
The impact of the prior year adjustments on the previously reported Unaudited Condensed Consolidated Statement of Financial Position as at 30 June 2011, together with a number of reclassifications necessary to bring the disclosures in line with those made at 31 December 2011, is summarised as follows:
As previously reported Restatements Reclassifications Restated GBPm GBPm GBPm GBPm -------------- ------------- ------------------ --------- Property, plant and equipment 2.3 (0.2) - 2.1 Goodwill 38.6 0.3 - 38.9 Other intangible assets 58.5 (0.1) - 58.4 Deferred tax asset 4.9 - (4.9) - Trade and other receivables 28.7 - 3.6 32.3 Current tax receivable 3.6 - - 3.6 Net assets classed as held for resale 17.4 2.7 - 20.1 Cash and cash equivalents 2.7 - 0.6 3.3 Trade and other payables (24.7) 0.2 (6.9) (31.4) Other current liabilities excluding debt (10.6) - 2.7 (7.9) Long term liabilities excluding debt (10.7) (9.0) 4.9 (14.8) Short term borrowings (123.6) - - (123.6) Long term borrowings (0.3) - - (0.3) Net Assets (13.2) (6.1) - (19.3) -------------- ------------- ------------------ ---------
As fully disclosed in Note 1 to the audited Financial Statements for the year ended 31 December 2011 the effect of prior year adjustments on net assets at 31 December 2010 was to reduce net assets by GBP6.7m. In the six months ended 30 June 2011 there was a beneficial impact on the result for the period, as noted above, of GBP0.6m, making the impact on net assets at 30 June 2011 a reduction of GBP6.1m. The major changes were:
Six months At ended At 31 December 30 June 30 June 2010 2011 2011 GBPm GBPm GBPm ------------- ----------- --------- HCA goodwill 10.2 - 10.2 HCA escrow account recognised 0.8 - 0.8 HCA deferred taxation: On intangible assets recognised (9.9) - (9.9) Correction of estimate in acquisition balance sheet (1.1) - (1.1) Cessation of depreciation and amortisation on the fixed assets of the Homecare division at 31 March 2011 - 0.3 0.3 Social Care division impairments: Goodwill (5.4) - (5.4) Intangible assets (1.4) 0.1 (1.3) Tangible assets (0.3) - (0.3) Social Care deferred tax 0.4 - 0.4 Deferred tax - 0.2 0.2 Impact on net assets (6.7) 0.6 (6.1) ------------- ----------- ---------
In the interests of clarity the assets and liabilities of the Homecare division are included in the above table in the appropriate rows rather than being compressed into assets held for resale.
The principal prior year adjustments booked to the 31 December 2010 Consolidated Statement of Financial Position related to:
-- the lack of recognition of a deferred tax liability of GBP9.9m on the recognition in the acquisition balance sheets of LML and HCA of trademarks and other intangible assets, with an equal and opposite impact on goodwill;
-- recognition of an escrow amount of GBP0.8m omitted from the acquisition balance sheet of HCA, with an equal and opposite impact on goodwill;
-- correction of an estimate of the deferred tax asset, which was understated by GBP1.1m at the date of acquisition of HCA, with an equal and opposite impact on goodwill; and
-- correction of a clerical error in the calculation of the value in use of the Social Care division which, had the error not occurred, would have required assets with a net value of GBP7.1m being impaired, reduced by GBP0.4m for the effect of the correction on deferred tax.
The reclassifications in the table above have been booked to make the 30 June 2011 Condensed Consolidated Statement of Financial Position consistent with the policies and disclosures adopted when preparing the accounts for the year ended 31 December 2011. There was no impact on reported net equity from the reclassifications.
6. Segmental Analysis
In 2012 the Group has enhanced the divisional segmental analysis by reporting direct divisional costs in the UK charged to the divisional gross profits to show divisional contribution to Adjusted EBITDA before UK central costs. Prior period segmental analyses have been restated in order to be consistent with the new allocations.
Restated 26 weeks six months ended ended Year ended 1 July 30 June 31 December 2012 2011 2011 Unaudited Unaudited Audited GBPm GBPm GBPm --------------------------------------- ----------- ------------ ------------- Revenue: UK: Locum doctors 12.0 13.7 25.5 Locum nursing 10.1 14.4 25.2 Locum allied health professionals 11.1 16.5 30.6 Locum qualified social workers 11.2 14.2 26.5 Permanent placements 0.8 1.4 2.6 Inter-segment* - (0.2) (0.1) ----------- ------------ ------------- Total UK 45.2 60.0 110.3 Australia 55.9 56.8 116.8 Continuing operations 101.1 116.8 227.1 ----------- ------------ ------------- Gross profit: UK: Locum doctors 1.7 2.1 3.7 Locum nursing 3.0 4.0 6.9 Locum allied health professionals 2.6 4.7 8.2 Locum qualified social workers 1.9 2.5 4.6 Permanent placements 0.8 1.4 2.6 ----------- ------------ ------------- Total UK 10.0 14.7 26.0 Australia 10.7 11.6 23.7 Continuing operations 20.7 26.3 49.7 ----------- ------------ ------------- Adjusted EBITDA: UK: Locum doctors 0.6 0.6 0.8 Locum nursing 1.8 2.8 4.6 Locum allied health professionals 1.3 2.8 4.4 Locum qualified social workers 0.8 0.4 1.4 Permanent placements (0.1) 0.2 0.3 Central costs excluding depreciation, amortisation and share based credits (6.6) (6.6) (14.3) ----------- ------------ ------------- Total UK (2.2) 0.2 (2.8) Australia 1.4 3.5 7.9 ----------- ------------ ------------- Continuing operations (0.8) 3.7 5.1 Depreciation and amortisation: UK (0.6) (1.0) (1.5) Australia (2.6) (2.6) (5.2) Share based credits - 0.5 0.5 Net exceptional operating expenses (0.8) (7.4) (9.6) Loss from operations (4.8) (6.8) (10.7) --------------------------------------- ----------- ------------ -------------
*Inter-segment adjustments represent removal of the overlapping commission revenue from placements recognised by two or more segments and measurement differences between the basis used to report invoiced transactions to the chief operating decision maker and the basis used in this unaudited condensed consolidated interim financial information.
Separate entities operating as registered NHS trusts in the UK are considered a single customer by the Group. Of total Group revenue, the NHS accounted for 30.7% (June 2011: 35.4%). No Australian individual customers contributed more than 10% of the Group's revenue in H1 2012.
7. Net Exceptional Operating Expenses Restated 26 weeks six months ended ended Year ended 1 July 30 June 31 December 2012 2011 2011 Unaudited Unaudited Audited GBPm GBPm GBPm ------------------------------------------- ----------- ------------ ------------- Exceptional operating income/(expense): Reorganisation and refinancing costs: Restructuring costs - (0.9) (1.8) Refinancing additional costs (0.1) - (0.7) Australia - integration costs - (0.8) (0.6) Onerous leases (0.2) - (0.7) ----------- ------------ ------------- (0.3) (1.7) (3.8) (Loss) / gain on fair value changes in contingent and deferred consideration 0.1 (4.1) (2.9) Investigation and resolution of accounting irregularities - (1.6) (2.9) Legal fees defending claims (0.6) - - Net exceptional operating expenses (0.8) (7.4) (9.6) ------------------------------------------- ----------- ------------ ------------- The exceptional expenses in the six months to 30 June 2011 have been restated to be consistent with the analysis reported for the year ended 31 December 2011, primarily by moving GBP2.3m of professional fees related to the Refinancing into exceptional finance costs (Note 8). The main exceptional costs in the 26 weeks to 1 July 2012 relate to legal fees incurred defending claims brought against the Company as disclosed in Note 13. Exceptional income of GBP0.1m relates to the reduced settlement of sums due to Craig Tibbles on the early settlement of the final agreed amount due on the acquisition of Orion Locums Ltd. and MJV Locums Ltd. on 23 July 2010, as disclosed in Note 17(b) to the Financial Statements for the year ended 31 December 2011. 8. Finance Income and Expense Restated 26 weeks six months ended ended Year ended 1 July 30 June 31 December 2012 2011 2011 Unaudited Unaudited Audited Finance income GBPm GBPm GBPm ------------------------------------------- ----------- ------------ ------------- Exceptional finance income: Refinancing - difference between fair value of shares issued to Ares Lux and the mezzanine finance retired - - 9.9 Fair value adjustment on Zero Coupon Loan Note - - 7.7 Bank debt waived - - 5.9 Accrued interest payable written off in Refinancing - - 0.6 ----------- ------------ ------------- - - 24.1 Interest received on bank deposits 0.1 0.1 0.1 Foreign exchange gains - 0.4 0.2 Gain on fair value changes in derivative financial instruments - - 0.1 0.1 0.5 24.5 ------------------------------------------- ----------- ------------ ------------- Restated 26 weeks six months ended ended Year ended 1 July 30 June 31 December 2012 2011 2011 Unaudited Unaudited Audited Finance expense GBPm GBPm GBPm ------------------------------------------- ----------- ------------ ------------- Exceptional finance expense: Bank fees relating to debt repaid written off - - 4.4 Professional fees of Banks' advisers - 1.5 3.0 Advisers fees on the Refinancing 0.1 0.8 2.5 Warrant option written off - - 2.6 Forex on refinancing - - 0.3 Arrangement fee on ACE Limited facility - - 0.2 ----------- ------------ ------------- 0.1 2.3 13.0 Bank loans and overdrafts 1.9 7.8 12.4 Amortisation of fees 0.4 0.5 1.0 Loss on fair value changes in derivative financial instruments 0.1 1.9 - Finance lease interest 0.1 0.1 0.2 Imputed interest on Zero Coupon Loan Notes 0.2 - 0.1 2.8 12.6 26.7 ------------------------------------------- ----------- ------------ ------------- 9. Tax Benefit
No current income tax expense is expected to result from the continuing activities for the 26 weeks ended 1 July 2012 as a result of pre-tax losses incurred during the period. No carry back of tax losses is possible, given the loss making position of the Group for the period ended 31 December 2011. Deferred Tax assets have been recognised to the extent that the realisation of the related tax benefit through future taxable profits is probable.
In the UK agreement was reached on the treatment of prior year losses and an additional tax benefit of GBP0.8m was recorded in the period. UK Corporation Tax recoverable was GBP3.8m at 1 July 2012 and GBP2.8m was received prior to the date of approval of these interim financial statements.
10. Profit for the Period from Discontinued Operations, Net of Tax
On 27 June 2011 the Group announced that its wholly-owned Australian subsidiary, HCA, had agreed to sell its Australian Homecare Division to KinCare Health Services Pty Limited.
The disposal enabled HCL to focus on the development of the core UK and Australian businesses and to realise value from non-core elements of the business. The net proceeds were used to reduce the Group's debt. The sale was in line with the Board's belief that the Homecare Division was non-core to the overall business of the Group and reflected the fact that the Homecare Division would have required further investment to realise its true potential.
The Homecare Division was disclosed as a discontinued operation in the Unaudited Condensed Consolidated Statement of Financial Position at 30 June 2011. The unaudited assets and liabilities which were reclassified to Assets and Liabilities, after accounting for the effect of the prior year adjustments as reported in Note 5, held for sale, were as stated below. For comparison the figures as of the disposal date are also shown:
Restated 17 July 30 June 2011 2011 GBPm GBPm -------- --------- Property, plant and equipment 0.2 0.2 Intangible assets - goodwill 6.6 6.6 Intangible assets - other 16.3 16.3 Deferred tax asset 0.4 0.3 Trade and other receivables 4.4 4.6 Cash and cash equivalents - 0.4 Trade and other payables (2.0) (2.3) Short term provisions (1.8) (1.7) Long term provisions (0.2) - Deferred tax liability (4.3) (4.3) Net assets sold 19.6 ------------------------------- -------- Net assets classified as held for sale 20.1 ------------------------------- -------- --------- Disposal proceeds 22.7 Costs of sale (2.4) Net proceeds of disposal 20.3 ------------------------------- -------- Net gain on disposal 0.7 ------------------------------- --------
The above net assets excluded inter-company payable balances to HCL companies of A$8.5m (GBP5.6m) not taken over by KinCare.
An analysis of the results of the discontinued operation is as follows:
Restated 1 January six months to ended 17 July 30 June 2011 2011 GBPm GBPm ---------------- -------------- Revenue 16.3 15.3 Cost of sales (11.5) (11.0) ---------------- -------------- Gross profit 4.8 4.3 Administrative and other operating expenses (3.7) (3.3) ---------------- -------------- Profit before taxation 1.1 1.0 Tax (expense)/benefit (0.4) - ---------------- -------------- Profit for the period 0.7 1.0 ---------------- --------------
11. Earnings Per Share
Restated 26 weeks six months ended ended Year ended 1 July 30 June 31 December 2012 2011 2011 Unaudited Unaudited Audited Number '000 Number '000 Number '000 ----------------------------------------- ------------ ------------ ------------- Number of ordinary 10p shares Weighted average number of shares for basic EPS 847,799 113,338 334,075 Dilutive effect of share options - - - Weighted average number of shares used for diluted EPS 847,799 113,338 334,075 ----------------------------------------- ------------ ------------ ------------- Calculation of adjusted earnings for GBPm GBPm GBPm the year: ----------------------------------------- ------------ ------------ ------------- Loss for the period from continuing operations (5.7) (17.5) (10.3) ------------ ------------ ------------- Adjustments: Net exceptional operating expenses (Note 7) 0.8 7.4 9.6 Share-based payment credits - (0.5) (0.5) Exceptional finance income - - (24.1) Exceptional finance expense 0.1 2.3 13.0 ------------ ------------ ------------- 0.9 9.2 (2.0) Tax effect of above items (0.2) (1.5) (0.1) Post tax adjustments 0.7 7.7 (2.1) ------------ ------------ ------------- Adjusted loss for the period from continuing operations (5.0) (9.8) (12.4) ----------------------------------------- ------------ ------------ ------------- Earnings per share from continuing Pence Pence Pence operations ----------------------------------------- ------------ ------------ ------------- Basic and diluted earnings per share (0.7) (15.4) (3.1) Adjusted basic and diluted earnings share (0.6) (8.6) (3.7) ----------------------------------------- ------------ ------------ ------------- GBPm GBPm GBPm ----------------------------------------- ------------ ------------ ------------- Profit for the period from discontinued operations - 1.0 1.4 ----------------------------------------- ------------ ------------ ------------- Earnings per share from discontinued Pence Pence Pence operations ----------------------------------------- ------------ ------------ ------------- Basic and diluted earnings per share - 0.9 0.4 ----------------------------------------- ------------ ------------ ------------- Basic and diluted earnings per share calculations are identical as there are no dilutive options.
12. Dividends
26 weeks Six months ended ended Year ended 1 July 30 June 31 December 2012 2011 2011 Unaudited Unaudited Audited GBPm GBPm GBPm ---------------------------------- --------------- ------------- --------------- Interim dividend of 1.8p per ordinary share, paid on 10 January 2011, relating to the previous year's results. - 2.1 2.1 ---------------------------------- --------------- ------------- --------------- The Directors are not proposing an interim dividend for 2012 (2011: no interim or final dividends).
13. Contingent Liabilities
Claims and litigation
From time to time the Group and Company are in receipt of claims from customers and employees arising in the normal course of business.
The following disclosures are made to update shareholders on claims or exposures reported in Note 28 on the Financial Statements for the year ended 31 December 2011 which the Directors considered represented material uncertainties. Any adverse judgement in respect of these matters may have a material impact on the Group's and Company's results from operations, cash flows and financial position. In this event, the Directors may have to enter into negotiations with the Group's providers of finance or seek alternative sources of finance since the Group's cash flow forecasts and currently available financing assume no outflow of funds for any settlement or Court award in respect of these matters:
Dismissal of Executive Vice Chairman - Ms. Kate Bleasdale
The former Executive Vice Chairman was dismissed on 11 March 2011. She subsequently launched legal proceedings against the Company for unfair dismissal, victimisation and sex discrimination, claiming damages of GBP12m. An Employment Tribunal was held in April 2012 and, as announced on 22 June 2012, all Ms. Bleasdale's claims failed and her dismissal was held to be non-discriminatory and fair. Legal costs of defending the claim were expensed as incurred.
Ms Bleasdale subsequently asked the Employment Judge for a review of the decision but, after consideration, this review application was also declined. Ms Bleasdale has now made an appeal application to the Employment Appeal Tribunal which should decide in the next few weeks whether to let the appeal proceed beyond an initial review of her application to a full hearing of the Appeal Tribunal. On the basis of legal advice received and the judgements to date, the Board believes the claims are unfounded and, therefore, there is no liability or probable cash outflow for the Group, other than legal costs in defending the appeal, if her application for a hearing should be successful.
Litigation
Proceedings were filed on 12 February 2012 against Healthcare Locums plc, the Company's former Executive Vice Chairman Kathleen V Bleasdale, former Group Finance Director, Diane Jarvis and former Chairman Alan Walker ("the Defendants") in the United States District Court for the Southern District of New York. The proceedings were filed by Permian Master Fund, LP; Permian Investments Partners, LP; Arundel Capital LLC; Arundel Long Fund LP; Arundel Hedge Fund LP; Privet Capital, LLC and Flinn Investments, LLC ("the Plaintiffs"). On 26 March 2012 notice was received that the claims against Kathleen V Bleasdale had been dismissed without prejudice.
The Summons alleged that the Plaintiffs were induced to invest in securities issued by HCL or instruments linked to those securities on the basis of knowing or reckless misrepresentations by the Defendants concerning the Company's accounting practices and operating results and that disclosures concerning the Company's accounting irregularities caused material declines in the prices of HCL securities and instruments linked thereto, injuring the Plaintiffs. The Complaint alleged that the Plaintiffs have suffered substantial damages. The Complaint was available for inspection from the court.
As reported on 20 June 2012 the Company was advised that that the proceedings had been dismissed voluntarily by the Plaintiffs. No prior notice was given to the Company and no explanation has been given by the Plaintiffs as to their reasons for seeking voluntary dismissal.
As reported on 11 July 2012 proceedings were commenced, in substantially the same form, against Healthcare Locums plc, Alan Walker and Diane Jarvis, in the Supreme Court of the State of New York.
The Complaint requests a trial by jury and the Plaintiffs seek rescission and or compensatory damages (including interest thereon). Whilst the information provided is insufficient to enable the Board to assess the quantum of the compensatory damages claimed, it would appear that the Plaintiffs seek to assert a loss in the value of their investments. In the claim, the Plaintiffs assert that they spent in the region of GBP13m purchasing their investments. The Plaintiffs also seek an award for punitive damages for each claim to the maximum extent allowable by US law together with an award of costs and such other relief as the US Court may deem just and proper. The Board are unable to quantify the claim.
The Board announced on 14 August 2012 that having considered the matter very carefully with the Company's legal advisors the Board has decided the Company will not submit to the US jurisdiction by filing a defence. In arriving at that decision, the Board has considered (amongst other things):
(a) The company is incorporated in England with its shares listed and traded on AIM, a part of the London Stock Exchange.
(b) Its actions are governed by English law and the listing and trading of its shares on the London Stock Exchange are regulated by the rules of that exchange.
(c) The former directors named as defendants in the proceedings were directors of an English company and their powers, duties, obligations and liabilities were regulated by English law.
(d) The subject matter of the alleged acts relates to events in England. (e) The Company does not operate in the US and has no assets in the US.
The Company has been advised by English Leading Counsel that if the Plaintiffs continue the US proceedings and secure a default judgment it is highly unlikely that any judgment would be recognised or enforceable in either the UK or Australia because of lack of jurisdiction in the US.
Accordingly, our legal advisors have written to the Plaintiffs' US counsel confirming that the Company does not propose to respond to the US proceedings and informing them that, if they wish to pursue a claim, they should do so in the proper forum, namely, the English High Court of Justice. The Plaintiffs' US counsel have also been informed that the Board consider the underlying claim to be wholly without merit and that if proceedings are commenced in the proper forum they will be strenuously defended.
No provision has been made for future legal costs which are written off as incurred.
Other contingent liabilities
Managed service and Umbrella companies
The Board has taken external advice from Grant Thornton as to whether any financial exposure might exist from sourcing locums through "Umbrella" and/or Managed Service Companies. HCL has recruited through a small number of companies which Her Majesty's Revenue & Customs ("HMRC") could seek to argue were Managed Service Companies. If such arguments were successful this could leave the Group at risk of claims from HMRC for unpaid Income Tax and/or National Insurance should a Managed Service Company become insolvent with debts owing to HMRC in respect of locums who had worked through HCL. Whilst the Board is unaware of any Umbrella Company being in arrears with payments to HMRC in respect of any locums provided from such companies, a residual risk remains.
The company operates self-billing arrangements for a large part of the locum workforce which enables the group to obtain a VAT deduction but which requires the supplier to account for VAT accordingly. There are a number of requirements associated with the operation of self-billing arrangements to obtain the VAT deduction. Should these requirements not be met there may be a contingent liability in respect of the VAT deduction claimed.
As well as the specific material contingent liabilities set out above, the Group's principal risks and uncertainties are set out in the section on Treasury management, currency risk and other principal risks and uncertainties facing the business in the Operating and Financial Review.
14. Related Party Transactions
MyWorkforce Limited, Nationwide Accreditation Bureau Company Limited, Montagu Nursing Agencies Limited, Dancorp Limited and Netengines Holdings Limited were related parties to the Group by virtue of a significant shareholder of the Company and husband of Ms. Kate Bleasdale, Mr. John Cariss, owning the majority of the share capital of these companies.
There were no transactions with any of the above companies in the 26 weeks ended 1 July 2012. There were no transactions with any of the above companies in 2011 other than settlement of the amounts outstanding at 31 December 2010 of GBP52,000 to Nationwide Accreditation Bureau Company Limited and GBP65,000 to Redwood Group Limited. There were no balances outstanding at 1 July 2012 or 31 December 2011.
During the year ended 31 December 2010 the Group purchased the trade and assets of Redwood Health Limited from the previous owners for a maximum consideration of GBP6,650,000, and Redwood Health Limited subsequently changed its name to Dancorp Limited. The previous owners were Cardale Investments LLP, a company controlled at one time by Ms. Kate Bleasdale and her husband Mr. John Cariss. Dancorp Limited is now in administration and negotiations took place with the Administrator regarding the final settlement of the deferred consideration, as reported in Note 17 to the Financial Statements for the year ended 31 December 2011. During the 26 weeks ended 1 July 2012 a final settlement of GBP325,000 was paid to the Administrator.
On 24 January 2011 the Company assigned the lease, which expires on 23 January 2020, of an office in London to Cardale Investments LLP. There was a rent free period until 23 June 2011 included within the agreement and the office furniture, fixtures and fittings, with a net book value of GBP20,000 that were owned by the Company were transferred free of charge to Cardale Investments LLP.
During 2011 the law firm SNR Denton provided a significant level of legal services to the Group. Mark Andrews, who joined the Board on 1 October 2011, was a Partner in SNR Denton until 30 April 2011 and remains a Consultant. Whilst SNR Denton was not a related party at any time in the year the Board considers the prior business relationship with SNR Denton, before Mark Andrews joined the Board, should be noted here for completeness.
A number of the Directors who served during 2011 and 26 weeks ended 1 July 2012 provided their services through their management companies. In addition small amounts of expenses directly incurred in providing their services were billed through those companies. The Directors and their companies were:
Andrew McRae (to 31 January 2011) MCR Consulting Limited Colin Whipp (resigned 1 October Amersham Business Management 2011) Limited Alan Walker (resigned 18 February Alfa International Limited 2011) Bill Jessup (resigned 19 April Corporate Navigator Limited 2012) Alasdair Liddell (resigned 31 Alasdair Liddell Limited March 2011)
Under the rules of the Alternative Investment Market a shareholder controlling in excess of 10% of the issued share capital is a related party. The Toscafund Concert Party was a related party during the year ended 31 December 2011 and the Company paid fees of GBP1,137,500 to Toscafund Asset Management LLP as disclosed in Note 25(b)(ii) to the Financial Statements for that year. The Toscafund Concert Party subscribed for 336,375,000 New Ordinary Shares in the Placing of New Ordinary Shares on 12 September 2011, a part of the Refinancing of the Group, paying GBP33,637,500.
The Ares concert party became a related party when the Refinancing was completed on 12 September 2011. Concurrently to the completion of the Refinancing, and as reported in the below numbered Notes to the Financial Statements for the year ended 31 December 2011, the Company paid fees of GBP200,000 to ACE Limited as disclosed in Note 25(b)(iii), swapped debt for equity as disclosed in Note 25(c) and swapped debt for the Zero Coupon Loan Note as disclosed in Note 25(e). Ares also subscribed for 131,625,000 New Ordinary shares in the Placing of New Ordinary Shares on 12 September 2011, partially paid for by writing off GBP3.0m of borrowings advanced under the Working Capital Facility. The Zero Coupon Loan Note was still held by Ares Lux at 1 July 2012 at which time the fair value in the Condensed Consolidated Statement of Financial Position was GBP2,814,736 (31 December 2011: GBP2,618,360).
15. Post Balance Sheet Events
As reported in Note 13 proceedings were commenced against the Company, and others, in the Supreme Court of the State of New York after 1 July 2012.
As reported in the Chairman's Statement, since 1 July 2012 the banks have agreed to reset the financial covenants in the Syndicated Loan Facility Agreement for the periods to 30 June 2013 and to defer the start of the principal repayments until that date. As agreement was not reached with the banks until after 1 July 2012 the classification of a part of the borrowings at 1 July 2012 within current liabilities, i.e. the amounts which at that date were scheduled to be repaid within 12 months, has not been amended. Under the revised agreement the 2014 principal repayments have been increased to compensate for the deferral of the start date. The margin charged for the facility has also been increased by 1% from 1 January 2013.
This information is provided by RNS
The company news service from the London Stock Exchange
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