TIDMHLO
RNS Number : 5482A
Healthcare Locums PLC
02 April 2012
Healthcare Locums plc ("HCL" or "the Company)
Group Unaudited Preliminary Results for the Year ended 31
December 2011
Healthcare Locums plc is today releasing its unaudited
preliminary results for the year ended 31 December 2011.
Enquiries:
Healthcare Locums Stephen Burke,
plc CEO 020 7451 1451
Sue Bygrave, CFO 020 7451 1451
Investec Gary Clarence 020 7597 5970
Patrick Robb 020 7597 5970
David Rydell
Emma Kent
Duncan Mayall
Pelham Bell Pottinger Charlotte Offredi 020 7861 3232
Contents:
Chairman's Statement
Operational Review
Financial Review
Principal Risks and Uncertainties
Corporate Governance
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes
Chairman's Statement
Without doubt, 2011 has been the most challenging year in the
history of Healthcare Locums plc.
In January, the Company announced the suspension of its shares
following the discovery of serious accounting irregularities and
that the financial performance of the UK business was well below
the then market expectations. The UK business was not generating
free cash and the business model had not been adapted sufficiently
to accommodate changing market conditions. The investigation of the
irregularities took several months to complete and led to the
restatement of the 2009 accounts when the 2010 accounts were
published in August. During the course of the investigations it
became clear that the capital structure of the Group and the costs
of servicing its debt were unsustainable. In July, the Board
announced the disposal of the Homecare Division of Healthcare
Australia ("Homecare") which raised approximately GBP20.3m in cash
that was used to reduce Group debt. This was insufficient to
restore financial viability and the Board sought a capital
injection and re-negotiated bank facilities. The Refinancing was
approved at a General Meeting of the Company in September following
which the Company's shares were re-admitted to trading.
All of these issues had to be managed against a background of
difficult market conditions, especially relating to supplies to the
UK's major customer, the National Health Service ("NHS"), which was
implementing its own stringent cost saving measures.
The sale of Homecare and the Refinancing completed in September
re-structured the balance sheet and removed a major source of risk
to the on-going financial viability of the Group. At 31 December
2011, the Group had bank and finance lease debt net of cash of
GBP23.4m. In addition, the Group has a GBP10.2m zero-coupon loan
note that is not repayable in normal circumstances until 30
September 2021. This is stated at GBP2.6m on the balance sheet at
31 December 2011.
Board and Governance
During the year, the entire Board was replaced. Alan Walker the
Chairman, the Deputy Chairman Alasdair Liddell, the Executive Vice
Chairman Kate Bleasdale, the Chief Financial Officer Diane Jarvis,
and the Chief Operating Officer Mo Dedat had all been removed from
or left the Board by the end of March. David Henderson and I were
appointed to the Board in February and we were joined by Stephen
Burke and Andy McRae as Group CEO and Managing Director of HCA in
Australia respectively in May. Colin Whipp served as Interim
Finance Director from May until September and Bill Jessup served in
that capacity from October until March 2012. Mark Andrews, formerly
a partner with law firm SNR Denton, joined the Board as a
non-executive director in October and Sue Bygrave was appointed as
the permanent Chief Financial Officer on 6 February 2012. We now
have a settled and experienced Board comprising three executive
directors and three non-executive directors. Martin Hughes was
appointed as Company Secretary in March 2011.
Under the former Board, corporate governance had been extremely
poor and an immediate action of the new Board has been to improve
the policies and procedures relating to the governance of the
Company. We aspire to have the sort of governance regime that would
be found in a well run FTSE 250 company. We have not completed this
programme yet but significant steps have been made.
The Board has appointed new auditors (Deloitte), lawyers (SNR
Denton) and Nominated Advisor and Broker (Investec) and
remuneration advisors (PwC) and now has a team of advisors that are
well able to guide the Board and the Company in the future.
Strategy
Following the successful Refinancing the new team set about
ensuring the stabilisation of the business after what had been a
period of unprecedented disruption. In the UK, the transformation
of the Company to one that puts the satisfaction of its customers'
requirements at the heart of its business is well underway.
Provision of Locums to the NHS through existing framework
agreements is now the normal way of doing business. We believe that
a quality led offering with pricing transparency is the best way of
building a long-term relationship with the NHS and we have invested
in people, processes and systems to promote that transparency and
to improve standards of clinical compliance. We are also investing
in software-led solutions - HCL Clarity - that will deliver
significant savings to our customers by providing visibility and
control to reduce the cost of agency spend and optimise the
substantive workforce, without compromising the quality of care. In
Australia, opportunities for organic growth exist, in particular,
by the further development of our nursing agency business in the
Eastern states and the roll out of the existing doctor locum
business nationally. With the opportunities available in these two
sectors we no longer see the allied health professionals market as
a priority for expansion in Australia. We can now concentrate on
executing the strategy to grow the business, both in the UK and
Australia, and thereby generate acceptable financial returns for
our shareholders.
The growth strategy will be underpinned by strong operational
and cost control. During the latter part of 2011 we made some
important appointments of senior leaders in UK business
development, IT, talent and people management and the operating
divisions in the UK and Australia. Although this has increased
costs, it was essential to build a widely skilled management team
that is capable of delivering the Company's strategic vision.
During 2012 we will be rolling out a new UK front-office IT system
capable of delivering real-time accurate management information and
embedding operational and compliance controls. Once implemented,
this system, known as Itris, is expected to make a meaningful
impact on net margins.
Results for year ended 31 december 2011
The revenue for the year was GBP227.1m (2010: GBP154.9m) and the
loss from continuing operations before tax was GBP12.9m (2010:
GBP63.6m). The adjusted earnings, before interest, tax,
depreciation, amortisation, highlighted items and share based
charges or credits increased from a loss of GBP0.1m in 2010 to a
profit of GBP5.9m in 2011.
The results for 2011 are analysed in full in the Financial
Review. These include the first full-year contribution from our
Australian businesses acquired in 2010. The results of the Homecare
Division of Healthcare Australia have been shown as discontinued
operations. Both 2011 and 2010 results include items that have been
highlighted in the Consolidated Statement of Comprehensive Income
to show the underlying performance of the business. There is a
restatement of 2010 balance sheet in relation to HCA acquisition
accounting and an impairment of the UK Social Care business. These
are accounting restatements with no ongoing cash impact.
Dividends
Currently we are not able to pay dividends as we have negative
distributable reserves and our banking arrangements prohibit us
from declaring dividends until the outstanding amount under the
Syndicated Facility Agreement has been reduced to less than GBP35m.
Despite this, the Board recognises that dividends should form part
of shareholders' investment returns and the Board will be working
towards the reintroduction of dividend payments as soon as
possible.
After taking legal and accounting advice, the Board has
concluded that the dividend paid on 10 January 2011 was unlawful as
the then Board should have known at the date that the dividends
were approved and paid that the Company had insufficient reserves
available to make the payment. The Board has been unable as yet to
come to a definite conclusion about the legality of the dividends
paid on 1 April and 25 June 2010. No action will be taken to
recover unlawful dividends from shareholders in general. However,
the Board is considering whether remedies are available against
former directors to recover unlawful dividends paid to them and
damages for breach of duty in authorising the relevant
dividends.
Litigation and going concern
The Board has previously announced two major claims against the
Company, one from the former Executive Vice Chairman and the other
from a number of shareholders. These are described in Note 25. No
provision has been made in these accounts for future legal costs or
for any settlement or adverse determination arising from the
litigation. While the Board continues to adopt the going concern
basis, these claims and the other matters described in the going
concern section of the Financial Review such as the narrow margin
against banking covenants, give rise to a material uncertainty
regarding the Group's ability to continue as a going concern.
People
2011 has been a tremendously turbulent year for our staff. There
has been a complete change in the Board and extensive change in the
senior leadership of the Group. Matters emerged during the course
of investigations that were highly damaging to the
Company. During parts of the year, the future of the Company was
in doubt and there were long periods when it was not possible to
keep staff well informed because of the uncertainty of negotiations
with third parties. At the same time, in the UK, there was also a
significant change in strategy towards on-Framework business.
Despite this, our staff have overwhelmingly stayed loyal to the
Company and it is primarily through their personal commitment and
their engagement with our customers that the Company has retained
its market position. For this, and their unstinting efforts,
especially during the period leading up to the re-financing, the
Board and shareholders owe them a substantial debt of
gratitude.
Outlook
Although there will be many risks and challenges ahead, we
believe that 2011 saw the nadir in the Company's fortunes. The
Group has been re-financed; a new leadership team has brought
operational stability and is implementing new growth strategies to
generate long-term improvements in financial performance. Despite
all the issues of 2011, the Group remains a leading business in
healthcare recruitment in both the UK and Australia. In the
short-term we have the uncertainty regarding two major legal cases
to deal with. Once legacy issues are addressed, the Board and I are
confident that the Group can prosper.
Peter Sullivan
Chairman
Operational Review
Following the successful Refinancing of the Company on 12 Sept
2011, we have begun implementing the restructuring and
re-engineering plans which we had previously outlined to
shareholders and which we believe are key to generating sustainable
growth. In the following paragraphs we describe how that strategy
is being implemented and comment on trading in 2011. Although the
balance of operations in the UK and Australia is different, there
are common themes in the execution of the overall strategy.
UK
Customer Relationship Management
A significant part of the UK business's supply to the NHS had
historically been outside of the purchasing Framework Agreements.
Increased cost pressures on the NHS through 2010 and 2011 resulted
in a key, and in the Board's view, irreversible shift to locum
procurement through the Framework structures.
Having adopted a transparent Framework supply strategy across
all divisions, we believe we have made considerable progress in
repositioning HCL as a valued and trusted supplier, aligned to our
customers' needs. Our market leading Managed Solution, HCL Clarity
which is described in more detail below, demonstrates our
understanding of and commitment to the Department of Health's
Quality, Innovation, Productivity, Prevention ("QIPP") strategy
which we believe will enable HCL to become a long-term partner to
the NHS, private healthcare groups and Local Authorities in
providing flexible workforce solutions.
We have restructured our UK Business Development function
together with our Recruitment and Compliance supply chain, to
mirror our clients' demands and to facilitate relationships at
national, regional and local levels. The implementation of our new
CRM recruitment system is explained in more detail below.
A UK Head of Clinical Governance and Compliance has been
appointed who is responsible for testing the Group's compliance
programme. The Group continues to supply to the NHS without
restriction and has positively engaged with the NHS to improve the
service which it provides.
Organic Growth and Operational Improvement
Former management had focused on an acquisitive strategy but had
not operationally integrated the acquired businesses so it is not
surprising that the UK business has been operating through a large
number of brands and legal entities acquired over several years.
This left the Company without a clear scalable business model, too
many brands to support fully, overly complicated internal processes
and a range of front office systems without the capability to share
customer relationship data. From the customer's viewpoint and in
particular for the NHS, the existence of multiple brands has at
times caused confusion over our Framework and Direct Sales
offerings.
The current Board's strategy is to integrate those acquisitions
and grow the business organically with a key focus on cash
generation to pay down debt and in time, return cash to
shareholders.
We have made excellent progress to date:
-- Our detailed plan to rationalise the legal entities and
brands has the support of the Government Procurement Service
enabling us to agree the management of compliance processes through
the transition stage.
HCL will become our key Framework brand, with category
sub-brands for example HCL Nursing, HCL Doctors etc. A distinct
Direct Sales brand will be supported in each of the health and
social care markets with similar category sub-brands. We expect
this plan will be implemented by end Q2 2012.
-- The creation of a simplified legal entity structure behind
the brand rationalisation will enable us to standardise our back
office processes and realise the resulting operational
efficiencies. We expect to complete this reorganisation by end 2012
and would anticipate benefiting from the operational efficiencies
in 2013.
-- We have completed a thorough review of market leading IT
applications and have selected an integrated front office and
compliance package with a proven track record within the healthcare
staffing sector. The first divisional implementation has already
taken place in Allied Health Professionals and the UK roll out is
expected to take 15 months. Concurrently, the existing IT
infrastructure will be upgraded to meet the demands of the UK
business and to ensure robust business continuity across technology
and telecoms.
Operationally we expect the new system to improve the efficiency
of the compliance and recruitment processes and to drive
productivity gains through the sharing of both client and candidate
data across all UK businesses. Post implementation we will
integrate the application with our back office functions and
managed solution technology during 2013.
A number of changes have been made to the structure of the
business that we believe will result in operational efficiencies
and increase productivity through improved communication both
internally and with our candidate and client populations.
-- The Business Development function has been reorganised to
create accountability both at a national, pan-HCL level and at a
regional divisional level. The team is also now responsible for the
implementation of Contracts and targeted on fulfilment rates.
Further investment has been made in the Bid Management team.
-- The Theatre and General Nursing businesses covering England,
previously in separate locations in the South East and under
different management, have been brought together in our London
office under one management team.
-- Certain national Compliance roles previously supporting
specific divisions are now managed centrally to provide
cross-discipline support regionally.
-- The Allied Health disciplines have been relocated from
Loughton in Essex to our London office and restructured to reflect
a similar ratio of Resourcer to Recruitment Consultant roles as
operated elsewhere in the UK business.
-- The UK Finance function has also been relocated from Loughton to the London office.
These changes were implemented during Q4 2011 and the early part
of 2012 and we have been pleased with how the integrations have
proceeded.
Managed Solutions - HCL Clarity
The Board believes that pressure to reduce costs within the NHS
will result in opportunities for companies that are able to provide
solutions which manage effectively the flexible workforce and
result in significant and measureable savings to NHS Trusts and
Commissioning Groups.
We have recently entered into a partnership and commercial
agreement with Skillstream, a leading supplier of contingent
workforce management software, enabling us to combine HCL's
recruitment process and people expertise with software already
proven to generate substantial and quantifiable cost-savings within
the NHS.
Skillstream's software, which is well established and
operational with a high quality blue chip customer base throughout
the private sector (www.skillstream.co.uk), has been customised to
meet the specific requirements of the NHS including Framework
pricing matrices, Clinical Governance and compliance demands and
its VAT regime. The software is fully functional in several NHS
Trusts where it has generated significant savings very quickly
following implementation. These are detailed in a case study from
the Royal Free Hampstead NHS Trust which you can find at
www.hclclarity.com.
HCL Clarity is a managed service powered by Skillstream,
enabling significant cost savings by providing visibility and
control to reduce the cost of agency spend and optimise the
substantive workforce, without compromising the quality of
care.
The early reaction from clients to this ground breaking
proposition within the healthcare sector has been encouraging and
we look forward to updating shareholders on our progress in selling
this solution later in the year.
2011
The first half and second half performance in the UK is as
follows:
Revenue Gross profit
H1 H2 Year H1 H2 Year
GBPm GBPm GBPm GBPm GBPm GBPm
----------- ----------- ----------- ------------- ------------- -------------
Locum allied health professionals
(restated) 15.8 14.8 30.6 4.5 3.7 8.2
Locum doctors 13.7 11.8 25.5 2.1 1.6 3.7
Locum nursing (restated) 15.1 10.1 25.2 4.2 2.7 6.9
Locum qualified social workers 14.2 12.3 26.5 2.5 2.1 4.6
Permanent placements 1.4 1.2 2.6 1.4 1.2 2.6
Inter-segment (0.2) 0.1 (0.1) -
----------- ----------- ----------- ------------- ------------- -------------
Total 60.0 50.3 110.3 14.7 11.3 26.0
----------- ----------- -----------
Administration expenses (14.5) (14.3) (28.8)
------------- ------------- -------------
Adjusted EBITDA 0.2 (3.0) (2.8)
------------- ------------- -------------
Gross profit % H1 H2 Year
------- ------- -------
Locum allied health professionals 28.5% 25.0% 26.8%
Locum doctors 15.3% 13.6% 14.5%
Locum nursing (restated) 27.8% 26.7% 27.4%
Locum qualified social workers 17.6% 17.0% 17.4%
Permanent placements 100.0% 100.0% 100.0%
Total 24.5% 22.5% 23.6%
During 2011 placement of theatre nurses, which was previously in
allied health professionals, was moved to the nursing segment. The
information above has been restated to show the position had the
move taken place on 1 January 2011.
As noted above the new Board have decided to pursue a different
strategy to that followed by previous management in the Healthcare
market and to re-engineer the business to focus its supply to the
NHS through Framework contracts.
Engaged Framework suppliers earn lower gross margins but benefit
from significantly increased volume opportunities. We will continue
to maintain a discreet and transparent brand for non-Framework
business which will continue to provide flexible supply on demand
to the NHS as required and to a range of private sector
organisations.
Although 2011 was an uncertain period for the Company, the macro
issues facing our clients did not materially change. A combination
of pressures within the NHS, not only cost-related but on-going
concerns about the quality of care, are driving NHS strategies such
as QIPP creating opportunities for suppliers capable of providing
value for money solutions in the area of flexible workforce
management. We believe that we have a market leading offering in
this space.
At a Gross Margin level, the short term impact of this strategy
has required the business to accept generally lower margins whilst
continuing to build the critical mass of contractually compliant
supply required, for the business to benefit from the volume
opportunities available.
Allied Health Professionals - representing 31.5% of UK's
continuing Gross Profit in 2011
Comparing H2 2011 to H1 2011, the move of the NHS business onto
Framework supply resulted in a reduction in gross margin to 25.0%
from 28.5% with revenues slipping by 6% over the same period.
Locum Doctors - representing 14.2% of UK's continuing Gross
Profit in 2011
As this business completed its transition to Framework supply,
margins slipped from 15.3% in H1 to 13.6% in H2. Further we
experienced unusually slow demand post the September rotation and
consequently revenues reduced by 14% in the second half compared to
the first.
Nursing- representing 26.5% of UK's continuing Gross Profit in
2011
During H2 2011 we relocated the Theatre Nursing business
physically and operationally under the responsibility of the
Managing Director of the London based Nursing division.
Historically it had been managed within the Allied Health
Professionals Division and therefore for segmental reporting has
appeared there previously.
The reduction in Gross Profit in H2 compared to H1, is due to
the move of the Theatre Nursing business on to the Framework during
the course of H2 2011.
Qualified Social Workers - representing 17.7% of UK's continuing
Gross Profit in 2011
As we reported in the 2011 Interim Report, we reduced our
consultant headcount in the market for Qualified Social Workers
around the half year which inevitably resulted in a reduction in
Gross Profit in H2 versus H1 but did achieve the intended increase
in revenue per head in H2 compared to H1 and has provided a solid
platform on which to build.
The market remains tight with Local Authorities under budget
pressure. The gross margin slipped to 17.0% in the second half from
17.6% in H1 due to margin pressure within the Managed Vendor
contracts and fewer off-contract bookings available.
Permanent Placements - representing 10.0% of UK's continuing
Gross Profit in 2011
As previously reported, the headcount in this area was reduced
from 80 at 31 December 2010 to 30 at 30 June 2011 and the structure
of the division has been altered to create greater focus by
discipline and provide a solid foundation from which to grow. As
expected this did result in a decrease in revenue (from GBP1.4m in
H1 to GBP1.2m in H2) but revenue per head increased.
Australia
Customer Relationship Management
In Australia, HCA has been and remains a well established and
trusted Panel (Tier 1) supplier to the State Health Authorities and
to a number of private healthcare organisations in Australia.
As the largest national nursing agency and with a strong medical
locum business in New South Wales, we believe that we are well
placed to grow the business organically leveraging existing
relationships and infrastructure. As planned, the national
expansion of the medical locum business will begin in 2012. The
development of our managed solution, HCA Clarity, closely aligns
our service proposition with our clients' objectives and provides a
platform for us to strengthen further our supply relationships.
Organic Growth and Operational Improvement
As in the UK, HCA has grown through a number of acquisitions and
when the business was brought into the Group in December 2010,
there were a number of individual brands operating across Australia
which were not linked to the HCA brand. During 2011 we began the
process of consolidating the multiple brands and this is now
complete with all operating brands having been modernised and
linked explicitly to HCA.
This has helped us make good progress in improving the
effectiveness of our candidate generation marketing and we have
seen a positive upward trend in nurses and doctors registering with
HCA as a result of our clearer branding and a move towards more
online marketing. This has also led to a reduction in the
acquisition cost per candidate.
HCA's nursing agency business has a nationally recognised
Registered Training Organisation ("RTO") that has historically
provided accredited training and development courses for nurses
based in the state of South Australia (SA). We believe that the
ability to provide nurses with access to CPD training courses is a
key factor behind the success of our nursing agency business in SA
where it is the market leader with a significant market share.
Given that the biggest constraint on growth within the nursing
agency market in Australia is the supply of nurses, a key part of
our strategy is to extend the reach of the RTO nationally as we
believe that this will both attract more nurses to HCA as well as
improve our retention levels.
We have rebranded the RTO as "NursEd" and are presently
reconfiguring all of our offices across Australia to include a well
equipped training room with a view to every State and Territory
being able to offer nurses access to relevant CPD training courses
and other professional and development training.
As well as demonstrating a real commitment to investing in our
nurses' education, we are also able to assure our clients that all
nurses working with HCA are fully compliant with all professionally
required and mandated core competencies.
A key initiative within the nursing agency business, our locum
doctor business and the newly established permanent nurse
recruitment business has been to increase the supply of suitably
qualified nurses and doctors into Australia from overseas.
We have made good progress in this respect and have established
a team based in the Group's London office, responsible for sourcing
candidates wishing to relocate to Australia on a permanent basis,
along with nurses looking to work in Australia under the Working
Holiday Visa programme.
We have also established a small office in Auckland, New
Zealand, that is focused solely on sourcing candidates wishing to
work in Australia on a permanent, agency or locum basis.
Another key part of our strategy for Australia is to drive
operating efficiencies in the business through implementing
standardised, national processes, where relevant as well as using
technology where we believe costs can be reduced or eliminated or
where we believe that we may improve our competitiveness in the
market place.
We are presently undertaking a review of business processes
nationally within the nursing agency and the results of this
analysis will assist in determining areas of priority. Similarly,
we are planning to invest in upgrading the technology platforms in
use within the business and, by partnering with a global technology
company, will look to pass some of the risks of hardware and
technology obsolescence to a third party.
Managed Solutions - HCA Clarity
As in the UK, we believe that the pressure to reduce agency
staffing costs amongst our clients in both the public and private
health sectors in Australia will result in growth opportunities for
those companies that are able to provide proven solutions which
result in significant and measureable savings whilst at the same
time improving management information.
As Skillstream have an established physical presence and several
major clients in Australia, we are confident in their ability to
support HCA's development as a workforce solutions provider. We
were therefore delighted to extend our partnership agreement with
them into Australia. This was formally agreed in February 2012.
We believe that HCA Clarity will be a market leading solution in
Australia and during 2012 we will be refining our go to market
proposition and prioritising those clients with whom we believe we
will generate the best return. Early reactions from clients to this
development have been very positive.
2011
The first half and second half performance in Australia is as
follows:
H1 H2 Year
GBPm GBPm GBPm
----------- ----------- ------------
Revenue 56.8 60.0 116.8
Gross profit 11.6 12.1 23.7
Administration expenses (8.1) (6.9) (15.0)
----------- ----------- ------------
Adjusted EBITDA 3.5 5.2 8.7
----------- ----------- ------------
Gross profit
% 20.4% 20.2% 20.3%
The continuing business of Healthcare Australia ("HCA")
comprises the nursing agency, Last Minute Locums ("LML"), the locum
doctor business and the permanent recruitment division.
We have invested in a number of senior management appointments
in the sales, key account management, marketing and HR functions in
order to provide the necessary support platform to drive future
growth within HCA.
During 2011, we successfully rebranded HCA, including the launch
of a new interactive HCA website and significantly increased online
marketing activities, the results of which have been very
encouraging, with record numbers of candidate registrations across
all divisions. We will be further upgrading the website during
2012. During the year we also increased our online social media
presence on Facebook and Twitter and our weekly followers have
increased steadily.
Our efforts to focus on the proactive management of national and
key accounts was rewarded with the renewal of a panel contract with
one of the State based Public Health systems for a five year period
to end June 2016. In addition, we have also been successful in
securing preferred supplier status contracts within the Aged Care
sector in Australia.
In November, we achieved successful recertification under
ISO9001 for a further three year period.
Nursing Agency - representing 87% of HCA's continuing Gross
Profit in 2011
Notwithstanding a challenging start to the year in Queensland
due to widespread floods that caused a short-term down turn in
demand, market conditions nationally remained positive during the
year within both the public and private health sectors.
Demand for nursing staff in Australia presently exceeds our
ability to supply and we have therefore been investing in our
marketing activities to attract more nurses to register and work
with HCA and developing innovative ways to increase the level of
nurse productivity once registered with HCA.
Whilst the nurse supply shortage is a national issue, we have
been focusing our efforts on the Eastern seaboard states of
Queensland, New South Wales and Victoria, where the HCA nursing
agency is underweight relative to the overall market opportunity in
this part of Australia.
As the largest nursing agency in Australia and the only company
with a truly national network, we believe that we are able to offer
our nurses the best choice of work opportunities, whether in the
Public or Private sectors, in the large metropolitan centres,
regional cities or in remote and rural Australia. Furthermore, we
are the only nursing agency to have its own Registered Training
Organisation ("RTO"). Branded as NursEd, we are able to ensure that
all of our nurses meet mandatory competency requirements as well as
supporting our nurses with CPD training required as part of their
professional registration requirements.
NursEd has been very successful in attracting nurses
historically in South Australia and consequently we took the
decision in H2 2011 to expand nationally and the early signs are
encouraging.
During 2011, we continued to make progress in increasing our
penetration of the Aged Care nursing sector, which remains a key
part of our growth strategy.
Locum doctors - representing 11% of HCA's continuing Gross
Profit in 2011
The market for the provision of locum doctors remains positive
and a key growth opportunity for LML is to secure its standing as
an approved panel supplier in all States and Territories. In this
regard, towards the end of the year we commenced plans to broaden
the geographic reach of the business throughout Australia through
the appointment of recruitment consultants in Western Australia,
South Australia, Victoria and Queensland.
Having been acquired in August 2010, the operational and
financial integration of LML into HCA was completed during 2011 and
during the second half, we made progress in leveraging the
extensive client list within the nursing agency to develop new
clients for LML.
The physical co-location of LML within the Sydney office of HCA
took place at the end of the first quarter of 2012.
Permanent recruitment - representing 2% of HCA's continuing
Gross Profit in 2011
During 2011 we launched a permanent recruitment division in
Australia, focusing initially on the recruitment of doctors and
nurses. The permanent nurse recruitment business was branded Nurse
Jobs Australia ("NJA") whilst the doctor recruitment business was
branded LML Medical Recruitment.
NJA traded in line with our plans in 2011 and has had a positive
start to 2012.
However after a difficult few months trading for LML Medical
Recruitment and recognising the significant growth opportunities
within the permanent recruitment of nurses, we took the decision
during Q4 to withdraw from the doctors business and concentrate our
efforts on building NJA.
The Australian business works closely with the UK business, to
ensure that we are able to properly exploit the candidate pipeline
of nurses in the UK and Europe wishing to work in Australia, either
on a permanent basis or also under the Working Holiday Visa
scheme.
During 2011 we also opened a New Zealand resourcing office aimed
at taking advantage on the Tran-Tasman agreement and sourcing
doctors and nurses wishing to work in Australia on a locum or
permanent basis.
People Development across the Group
There are many highly talented and committed individuals
throughout the Group. However, little investment has been made
historically in people development and we believe that the
sustainable growth strategy for both the UK and Australian
businesses needs to be underpinned by a Group People Plan. The key
elements of this plan are to:
-- Develop a set of HCL corporate values - which will underpin
what we need to do to build a strong brand and differentiate
ourselves in the market. These values will shape our culture,
defining the characteristics and behaviours that guide the way we
work with our customers, our colleagues, our suppliers and other
stakeholders. These behaviours will show us what we need to do to
build a sustainable culture that will help us achieve our business
goals and make HCL a great place to work.
-- Build a high performance workplace - where employees are
clear on what they are expected to deliver and have development
plans to develop key skills and competencies to deliver high
performance.
-- Create a development culture - where employees have the
opportunity to develop themselves and their careers as they grow
the HCL business.
-- Build employee engagement - which in turn will deliver
outstanding and consistent customer experience.
-- Enhance our change management agility - to reflect our
customers' needs for solutions that deliver quality, cost
efficiency and transparency, the changing healthcare environment
and the requirement for scarce skills.
These five cornerstones of our People Plan will be underpinned
by operational excellence in our core people processes to support
the business as it restructures, transforms and develops
propositions to meet our customer needs.
Current Trading
The key strategic change of direction in our supply provision to
the NHS has inevitably impacted margins and gross profit levels in
the short term but was an essential precursor to the Company being
able to access the significant volumes available as a trusted
Framework partner.
Despite the significant level of change that the business and
our people have been asked to digest, our trading in the UK has
remained stable from November through to the end of Q1 2012.
In Australia the year is starting well.
Notwithstanding the uncertainty that our clients are
experiencing, we believe we will begin to see the benefits of our
strategic and operational changes as 2012 develops.
Financial Review
Introduction
The Financial Statements for the year ended 31 December 2010
were prepared on a going concern basis, which depended on a
successful Refinancing following the discovery of significant
accounting errors and revisions to prior periods results as
accounting policies were changed.
The Refinancing proposed by the Board received shareholder
approval at the meeting on 12 September 2011. Detailed disclosures
relating to the Refinancing are given in Note 23.
The 2011 unaudited preliminary Financial Statements have also
been prepared on a going concern basis, but the Board is drawing
attention to some material uncertainties, details of which are set
out below and in Note 25.
Going Concern
The Group's business activities, together with factors likely to
affect its future development, performance and position are set out
in the Operational Review. The financial position and borrowing
facilities are described in this Financial Review. In addition,
Note 25 to the financial statements describes the Group's
contingent liabilities.
The Group's budget for the year ending 31 December 2012 and its
forecast for the following period indicate that the Group plans to
operate within its current bank facilities and covenants albeit
with a narrow margin for contingencies. The plans reflect a number
of judgements made by the directors in respect of the risks and
uncertainties described in the disclosure of Principal Risks and
Uncertainties and in respect of the following material
uncertainties:
-- These plans reflect the Board's growth focused strategy which
is described in the Chairman's Statement and Operational Review and
assume significant increases in revenues principally from gains in
market share.
-- During the going concern review period a number of important
Framework agreements and contracts in both the UK and Australia are
to be renewed. While the Board has no information that the Group's
position in relation to these Frameworks and contracts will not
continue, there is a risk that if a combination of contracts were
not renewed (as a result of compliance issues or otherwise) then
the budgeted revenue would not be achieved.
-- The Board has considered several reasonably possible
scenarios with lower levels of revenue or margin than included in
the budgets and forecasts, some of which would require management
action to contain costs in order for the Group to keep within
existing banking covenants.
Whilst the directors consider their planned mitigating actions
to be achievable and balanced responses to the matters outlined
above, these circumstances create material uncertainties over
future trading and cash flows.
In addition, the Group is party to legal action described in
Note 25. The forecasts assume no liability and no cash outflows in
respect of Kate Bleasdale (other than a reasonable estimate of the
costs of defending this action) or the US litigation during the
review period. Any material adverse judgement would require the
Group to seek additional finance. The ultimate outcome of these
matters cannot presently be determined.
Members of the Board meet regularly with the Group's banks and
loan providers who receive regular information on the progress of
the Group, its plans and forecasts and their risks. The Group's
banks and loan providers have expressed their support for the new
Board and the Group's plans.
The directors have concluded that the combination of these
circumstances represents material uncertainty that casts
significant doubt upon the Company's ability to continue as a going
concern and that, therefore, the Company may be unable to realise
its assets and discharge its liabilities in the normal course of
business. The unaudited Preliminary Financial Statements do not
include the adjustments that would result if the Company and the
Group were unable to continue as a going concern. Nevertheless,
after making enquiries and considering the uncertainties described
above, as well as the mitigating actions available to them and the
expression of support from the Group's bankers, the directors have
a reasonable expectation that the Company 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 annual financial
statements.
Prior Year Adjustments
During the preparation of the Unaudited Consolidated
Financial Statements for the year ended 31
December 2011, it became apparent that the
recognition of a deferred tax liability of
GBP9.6m (A$15.1m converted at rates ruling
on the acquisition dates), on trademarks and
other intangible assets of GBP31.8m (A$50.1m)
recognised on the acquisition of LML and HCA
had been omitted. As a result a restatement
is required in the acquisition balance sheets
to recognise this liability on the dates of
acquisition of 1 August 2010 and 20 December
2010 respectively, with goodwill increasing
by GBP9.6m at the date of acquisition.
In addition, an escrow amount of GBP0.8m (A$1.2m)
from a prior acquisition by HCA had been omitted
and has also been included in the restated
receivables on the acquisition balance sheet,
with goodwill reducing by GBP0.8m at the date
of acquisition.
In addition, when completing the accounts for
the consolidated Australian tax group for the
tax year to June 2011 it was determined that
the deferred tax asset estimate in the acquisition
balance sheet was understated by GBP1.1m (A$
1.7m) and the estimate in the acquisition balance
sheet has been corrected, with goodwill increasing
by GBP1.1m at the date of acquisition.
A summary of the restatement entries is as
follows:
Acquisition 31 December
date Forex 2011
------- ------------ ------ ------------
A$m GBPm GBPm GBPm
------- ------------ ------ ------------
Goodwill 15.6 9.9 0.3 10.2
Receivables 1.2 0.8 - 0.8
Deferred tax asset (1.7) (1.1) - (1.1)
Deferred tax liability (15.1) (9.6) (0.3) (9.9)
Also during the preparation of the Unaudited Consolidated
Financial Statements for the year ended 31 December 2011 a clerical
error in the 2010 calculation of the value in use of the UK Social
Care division was discovered which, had the error not occurred,
would have meant the impairment of the goodwill and assets
associated with that division would have increased by GBP7.1m. A
prior year adjustment has been booked to correct this misstatement,
reducing goodwill by GBP5.4m, other intangible assets by GBP1.4m,
tangible fixed assets by GBP0.3m, deferred tax liability by GBP0.4m
and retained earnings at 31 December 2010 by GBP6.7m.
The combined impact of the above prior year adjustments on the
loss from operations and loss for the year ended 31 December 2010
was as follows:
Loss Loss
from for the
operations year
GBPm GBPm
------------ ---------
As reported for the year
ended 31 December 2010 (52.1) (54.4)
Goodwill and asset impairment
of Social Care division (7.1) (7.1)
Deferred tax - 0.4
As restated for the year
ended 31 December 2010 (59.2) (61.1)
------------ ---------
The combined impact of the above prior year adjustments on the
relevant figures in the Consolidated Statement of Financial
Position at 31 December 2010 was as follows:
As previously Impact
reported of restatements Restated
GBPm GBPm GBPm
-------------- ----------------- ---------
Goodwill 41.4 4.8 46.2
Other intangible assets 77.0 (1.4) 75.6
Property, plant and equipment 2.8 (0.3) 2.5
Trade and other receivables 36.3 0.8 37.1
Deferred tax (3.7) (10.6) (14.3)
-------------- ----------------- ---------
Impact of restatements (6.7)
-----------------
Profit and loss for the
year (54.4) (6.7) (61.1)
-------------- ----------------- ---------
Profit and loss reserve (54.5) (6.7) (61.2)
-------------- ----------------- ---------
The Group presents adjusted earnings per share in Note 10. The
calculation for the year ended 31 December 2010 was misstated as
detailed in that note.
The acquisition note for 2010 acquisitions has been restated in
Note 15.
Critical Accounting Estimates and Judgements
The Group makes estimates and judgements regarding future
events. Estimates and judgements are regularly evaluated based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances. In the future actual experience may differ from
those estimates and judgements.
The critical accounting estimates and judgements are set out in
more detail in Note 3(w).
Results Summary
The summarised unaudited results for the year ended 31 December
2011 are set out in the table below. The results of continuing
operations in 2011 benefit significantly from the inclusion for a
full year of the Australian businesses acquired in 2010. The Board
believes that the figure that best illustrates the underlying
performance of the business is earnings before depreciation,
amortisation, interest and tax and before highlighted operating
costs and share based charges or credits. This figure, defined
below as Adjusted EBITDA increased to GBP5.9m for the year ended 31
December 2011, compared with a loss of GBP0.1m in 2010.
In addition to the prior year adjustments described above, the
2010 results in the table below have been restated to reflect the
reclassification of the results of HCA's Homecare Division,
disposed of in July 2011, into the line "Profit from discontinued
items, net of tax."
Restated
2011 (1) 2010
Continuing operations: GBPm GBPm
-------- ----------
Revenue 227.1 154.9
Cost of Sales (177.4) (114.2)
-------- ----------
Gross Profit 49.7 40.7
Gross Profit % 21.9% 26.3%
Administrative expenses (43.8) (40.8)
-------- ----------
Adjusted EBITDA 5.9 (0.1)
Depreciation of property, plant
and equipment (1.1) (0.6)
Amortisation of intangible assets (6.4) (1.7)
Share scheme credits / (charges) 0.5 (0.6)
-------- ----------
Loss from operations before highlighted
items (1.1) (3.0)
Highlighted items:
Goodwill impairment - (51.4)
Net exceptional operating expenses (9.6) (4.8)
-------- ----------
Loss from operations (10.7) (59.2)
Finance expense (net) (2.2) (4.4)
-------- ----------
Loss before tax (12.9) (63.6)
Taxation 2.6 2.5
-------- ----------
Loss after tax from continuing operations (10.3) (61.1)
Profit from discontinued operations,
net of tax 1.4 -
-------- ----------
Loss for the year (8.9) (61.1)
-------- ----------
Basic loss per share from continuing
operations (3.1)p (56.2)p
Adjusted basic loss per share from
continuing operations (3.9)p (5.1)p
------------------------------------------- -------- ----------
(1) 2010 figures have been restated for the revised impairment
of goodwill and other assets in the UK Social Care division (Note
1). In addition the amounts credited or charged in the various
headings for the operations of the Homecare division have been
moved to profit for the year from discontinued operations - a net
GBPnil result - as the Homecare division was sold in 2011 (Note
9).
Depreciation, amortisation and share scheme credits (2010:
charges) were GBP7.0m (2010: GBP2.9m). The majority of the increase
represents amortisation of the intangible assets of HCA for a full
year in 2011, offset by a share-based payment scheme credit due to
the forfeiture of a large number of options held by former
Directors.
Highlighted items in 2011 primarily related to the restructuring
of the business, the investigation into and restatement of
accounting irregularities, and a net charge for adjustments to
deferred consideration on acquisitions. In 2010 the highlighted
items were mainly the impairment of goodwill, property, plant and
equipment and intangible assets, acquisition related costs and
restructuring costs, offset by a gain on fair value changes in
contingent consideration on an acquisition. The 2011 charge for the
adjustments to deferred consideration on acquisitions and the 2010
credit on fair value changes in contingent consideration on an
acquisition contained broadly matching, but opposite, amounts which
had to be booked in separate years as an agreement was signed in
early January 2011 which gave rise to the charge in 2011.
net exceptional operating expenses
Net exceptional operating expenses comprise:
Restated
2011 2010
GBPm GBPm
------ ---------
Exceptional operating income/(expense):
Reorganisation and refinancing
costs:
Restructuring costs (1.8) (0.3)
Refinancing additional costs (0.7) -
Australia - integration costs (0.6) (0.4)
Onerous leases (0.7) (0.7)
------ ---------
(3.8) (1.4)
(Loss) / gain on fair value changes
in contingent and deferred consideration
(Note 15) (2.9) 4.2
Investigation and resolution of (2.9) -
accounting irregularities
Acquisition related transaction
costs (Note 15) - (2.8)
Costs related to advice concerning
possible disposal of business - (1.4)
Impairment of property, plant
and equipment (Note 14) - (0.7)
Impairment of other intangible
assets (Note 13) - (2.7)
------------------------------------------- ------ ---------
Net exceptional operating expenses (9.6) (4.8)
------------------------------------------- ------ ---------
finance expense (net)
In 2011 the net finance expense was GBP2.2m (2010: charge
GBP4.4m). As a result of the refinancing during the year a number
of large debits and credits passed through finance income and
finance expense as the tables below illustrate:
2011 2010
Finance income GBPm GBPm
------ ------
Exceptional finance income:
Refinancing - difference between -
fair value of shares issued to
Ares Lux and the mezzanine finance
retired (Note 23c) 9.9
Fair value adjustment on Zero Coupon 7.7 -
Loan Note (Note 23e)
Foreign exchange on Refinancing 0.3 -
Bank debt waived (Note 23f) 5.9 -
Accrued interest payable written 0.6 -
off in Refinancing (Note 23f)
------ ------
24.4 -
Interest received on bank deposits 0.1 -
Foreign exchange gains 0.2 1.5
Gain on fair value changes in derivative
financial instruments 0.1 0.5
24.8 2.0
------------------------------------------- ------ ------
2011 2010
Finance expense GBPm GBPm
------ ------
Exceptional finance expense:
Bank fees relating to debt repaid 4.4 -
written off (Note 23g)
Professional fees of Banks' advisers 3.0 -
(Note 23h)
Advisers fees on the Refinancing 2.5 -
(Note 23h)
Warrant option written off (Note 2.6 -
19)
Arrangement fee on ACE Limited facility 0.2 -
(Note 23(b)(iv))
------ ------
12.7 -
Bank loans and overdrafts 14.0 3.7
Loss on fair value changes in derivative
financial instruments - 2.5
Finance lease interest 0.2 0.2
Imputed interest on Zero Coupon 0.1 -
Loan Notes (Note 22)
27.0 6.4
------------------------------------------- ------ ------
The Group has recognised exceptional finance income of GBP9.9m
on the debt for equity swap with Ares Lux as disclosed in Note
23(c), GBP7.7m on the conversion of debt into Zero Coupon Loan
Notes as reported in Note 23(e), GBP5.9m on bank debt waived as
reported in Note 23(f) and GBP0.6m of accrued interest waived by
the banks as reported in Note 23(f). Within finance expense the
Group has recognised GBP5.5m of fees relating to the Refinancing
and GBP4.4m of unamortised debt fees written off when debt was
repaid early as part of the Refinancing. Ignoring these exceptional
amounts the underlying expense was GBP14.3m (2010: GBP3.9m)
reflecting the cost of ownership of HCA for a full year.
segmental analysis
2011 2011 2010 2010
Gross Gross
Revenue profit Revenue profit
GBPm GBPm GBPm GBPm
----------------------------- -------- -------- -------- --------
UK:
Locum doctors 25.5 3.7 33.7 6.3
Locum qualified social
workers 26.5 4.6 35.6 6.8
Locum allied health
professionals (restated) 30.6 8.2 47.0 14.7
Locum nursing (restated) 25.2 6.9 26.3 7.0
Permanent placements 2.6 2.6 3.9 3.9
Inter-segment (0.1) - (0.6) (0.4)
-------- -------- -------- --------
Total UK 110.3 26.0 145.9 38.3
Australia 116.8 23.7 9.0 2.4
-------- -------- -------- --------
Continuing operations 227.1 49.7 154.9 40.7
-------- --------
Operating expenses
before highlighted
items
UK and corporate (29.8) (41.0)
Australia (21.0) (2.7)
Goodwill impairment - (51.4)
Net exceptional operating
expenses (9.6) (4.8)
-------- --------
Loss from operations (10.7) (59.2)
----------------------------- -------- -------- -------- --------
During 2011, placement of theatre nurses, which was previously
included within allied health professionals was moved to the
nursing segment. Prior year segmental information has been restated
to reflect the current reporting structure.
UK revenues and gross profits fell significantly in 2011
reflecting, inter alia, the reorganisation of the UK business and
the change in strategy towards providing more locums through
Framework agreements with lower margins but potentially much
greater volumes. UK overheads were cut accordingly with UK
headcount reducing from 570 in January to 387 in December 2011.
The table below separates the H1 and H2 performance:
Restated(1)
H1 2011 H2 2011(2)
Continuing operations: GBPm GBPm
------------- -----------
Revenue 116.8 110.3
Cost of Sales (90.5) (86.9)
------------- -----------
Gross Profit 26.3 23.4
Gross Profit % 22.5% 21.2%
Administrative expenses (22.6) (21.2)
------------- -----------
Adjusted EBITDA 3.7 2.2
Depreciation of property, plant
and equipment (0.5) (0.6)
Amortisation of intangible assets (3.1) (3.3)
Share scheme credits 0.5 -
------------- -----------
Adjusted profit / (loss) from operations 0.6 (1.7)
Highlighted items:
Net exceptional operating expenses (7.4) (2.2)
------------- -----------
Loss from operations (6.8) (3.9)
Finance (expense) / income (net) (12.1) 9.9
------------- -----------
(Loss) / profit before tax (18.9) 6.0
Taxation 1.2 1.4
------------- -----------
(Loss) / profit after tax from continuing
operations (17.7) 7.4
Profit from discontinued operation,
net of tax 1.0 0.4
------------------------------------------- ------------- -----------
Loss for the year (16.7) 7.8
------------------------------------------- ------------- -----------
(1) Unaudited figures for H1 are taken from
the Interim Results for the 6 months to June
2011 adjusted for:
(a) depreciation and amortisation adjusted for
the impact of impairing the assets of the Social
Care business in the United Kingdom as a prior
year adjustment as disclosed in more detail
in Note 1.
(b) analysis of exceptional costs and income
reclassified to be consistent with the classification
in this unaudited preliminary statements.
(c) the results of the discontinued operation
have been adjusted to cease depreciating assets
at the time, 31 March 2011, the business was
classifed as held for disposal.
(2) Full year unaudited preliminary results
less unaudited and restated H1.
The first half and second half performance is discussed in the
Operational Review.
taxation
The tax benefit for the year ended 31 December 2011 is a credit
of GBP2.6m (2010:GBP2.5m) comprising prior year UK corporation tax
credit of GBP0.8m, group relief re Homecare of GBP0.4m and a
deferred tax credit of GBP1.4m.
Acquisitions
There were no acquisitions during the year ended 31 December
2011. Details of the movements on contingent and deferred
consideration amounts are given in Note 15 and Note 20.
Disposal
On 18 July 2011 the Company announced that the wholly owned
Australian subsidiary, Healthcare Australia Holdings Pty. Ltd. had
completed the sale of its Homecare division. The gross
consideration was A$34m (GBP22.7m). The net proceeds after costs;
adjustments relating to the net assets sold; and accounting for the
cash within the Homecare Division at the time of disposal was
A$30.5m (GBP20.3m) which was used to repay debt.
In the year ended 31 December 2010, based on unaudited
management accounts, the Homecare division generated a turnover of
A$44.7m (GBP28.1m, of which GBP2.3m was whilst a member of the
Group)and a gross profit of A$12.2m (GBP7.6m, of which GBP0.6m was
whilst a member of the Group).
The disposal generated a gain of GBP0.7m after expenses (Note
9). In calculating this gain account was taken of the fact that the
Homecare Division was held for resale from 31 March 2011 and so for
Group reporting purposes depreciation of fixed assets ceased on
that date. The results of the Homecare division to the date of
disposal, together with the profit on disposal, have been reported
in the Unaudited Statement of Comprehensive Income in the line
"Profit for the year from discontinued operations, net of tax". The
prior year figures have been restated to show the Homecare division
as discontinued, but the net profit after tax in the short period
of ownership in the year ended 31 December 2010 was GBPnil.
Goodwill
Goodwill may be analysed as follows:
Prior Restated
31 December Year 31 December Foreign 31 December
2010 Adjustments 2010 Transfers Disposals Exchange 2011
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------------- ------------- ---------- ---------- ---------- ------------
Social
Care 5.4 (5.4) - - - - -
Allied
Health
Professionals 10.7 - 10.7 (2.7) - - 8.0
Nursing 8.8 - 8.8 2.7 - - 11.5
Australia 16.5 10.2 26.7 - (6.5) 0.1 20.3
---------------- ------------ ------------- ------------- ---------- ---------- ---------- ------------
41.4 4.8 46.2 - (6.5) 0.1 39.8
---------------- ------------ ------------- ------------- ---------- ---------- ---------- ------------
As a result of the transfer of the theatre nurses operations
from the allied health professionals segment to the nursing
segment, GBP2.7m of associated goodwill was transferred between
these segments during 2011.
The Group tests goodwill for possible impairment annually or on
other occasions if there are indications of a possible impairment.
The recoverable amounts have been determined from value in use
calculations based on cash flow projections from formally approved
budgets and forecasts for 2012, 2013 and 2014 and estimates for
subsequent years. More details of the assumptions are given in Note
12.
Other Intangible Assets
As noted in the critical accounting estimates and judgements
paragraphs, the measurement and subsequent valuation of Intangible
Assets requires management to make significant estimates in
determining fair values. Management make these estimates for
material acquisitions with the assistance of independent expert
valuers.
The Other Intangible Assets are analysed as follows:
2010
2011 Restated
GBPm GBPm
----- ----------
Brands and trademarks 26.3 33.0
Customer relationships 18.0 27.9
Candidate database 8.8 13.2
Non-compete agreements 0.4 0.5
Computer software 0.4 1.0
53.9 75.6
------------------------ ----- ----------
The main reasons for the decrease were the GBP15.9m of
Intangible Assets of the Homecare division which were sold with
that business in July 2011, and GBP6.4m of amortisation charged
during the year.
Dividends
Dividends are discussed in the Chairman's Statement and in Note
11.
Cash Flow
The following table reconciles the loss for the year to the cash
flow from operating activities:
2011 2010
GBPm GBPm
------ -------
Loss for the year (8.9) (61.1)
Adjustments:
Discontinued operations (1.4) -
Loss/(gain) on fair value changes
in contingent consideration 2.9 (4.2)
Depreciation, amortisation and impairment 7.5 57.1
Finance expenses (net) 2.2 4.4
Share-based payments (credits) /
charges (0.5) 0.6
Corporation tax expense (2.6) (2.5)
------ -------
Cash flows from operating activities
before changes in working capital
and provisions (0.8) (5.7)
Change in working capital and provisions 1.4 9.3
------ -------
Cash generated from operations 0.6 3.6
Corporation tax paid (2.5) (4.0)
Cash flow from operating activities (1.9) (0.4)
--------------------------------------------- ------ -------
Cash flows from operating, investing and financing are analysed
as:
2011 2010
GBPm GBPm
------- -------
Cash flow from operating activities (1.9) (0.4)
------- -------
Investing activities:
Interest received 0.1 1.5
Acquisitions of subsidiaries (net
of cash acquired) - (89.8)
Disposal of property, plant and
equipment 0.1 -
Disposal of Homecare division 20.3 -
Contingent consideration paid (2.7) -
Acquisition of tangible and intangible
assets (1.1) (1.8)
Net cash used in investing activities 16.7 (90.1)
------- -------
Financing activities:
Issue of Ordinary Shares 56.2 11.7
New loans acquired 38.9 140.5
Loans repaid (83.9) (24.9)
Interest and similar expenses paid (14.4) (4.7)
Loan fees (5.7) (7.7)
Dividends (2.1) (3.6)
Net cash (used)/generated from financing
activities (11.0) 111.3
------- -------
Effect of exchange rate movements (0.1) (2.8)
Movement in cash and cash equivalents 3.7 18.0
------------------------------------------ ------- -------
Borrowings
Borrowings at 31 December are analysed in Notes 18 and 19. Net
debt is analysed as follows:
2011 2010
GBPm GBPm
------- -------
Loans - principal amounts:
Sterling denominated - 81.5
Australian Dollar denominated 39.5 43.0
Zero Coupon Loan Notes due 2021
(principal amount GBP10.2m) 2.6 -
Unamortised loan fees (2.3) (7.6)
Bank overdraft - 0.1
Fair value of warrants - (2.9)
Obligations under finance leases 0.4 0.9
------- -------
40.2 115.0
Cash and cash equivalents (14.2) (10.6)
Net debt 26.0 104.4
---------------------------------- ------- -------
In the Financial Statements at 31 December 2010 all debt was
treated as current debt as the Board believed it was probable that
at that date the Group was in default under the Senior Facilities
Agreement and the Mezzanine Facility Agreement with its lenders.
The lenders never took any action based on that probable default.
Following the Refinancing long-term debt is now classified within
non-current liabilities.
The principal reasons for the reduction in borrowings during the
year were the disposal of the Homecare division and the Refinancing
which is explained in detail in Note 23
Key Performance Indicators
The key performance indicators monitored by management during
2011 were:
-- Revenue and gross margin, which are reviewed at a weekly sales meeting; and
-- Days sales outstanding which is a measure of the efficiency of cash collection from clients
In future, management will also monitor conversion ratio, being
the percentage of gross margin retained in the business after
attributable operating costs are charged
Principal Risks and Uncertainties
The Board's assessment of the principal risks and uncertainties
facing the business is set out below.
The attention of shareholders is also drawn to the contingent
liabilities Note 25.
Principal Risks and Uncertainties
The Board is developing improved processes to identify and
manage risk. A listing of principal risks and uncertainties was
published in the 2010 Annual Report in August 2011.
Risks are reviewed formally by the whole Board during the annual
budgeting cycle. Day-to-day management of risk is the
responsibility of the executive directors. The effectiveness of
risk management will be monitored by the Board.
The principal risks and uncertainties which are currently judged
to have the largest potential impact on the Group's financial
performance and reputational standing are described below.
Risk Mitigation
----------------------------------- -----------------------------------
Relationships with key
customers The Board monitors relationships
The Group has a number with key customers regularly.
of key customers, particularly The CEO is responsible
the NHS in the UK and for maintenance of good
the various State and relationships with the
Territory health systems NHS supported by the
in Australia. Customer divisional managing
relations and compliance directors and the UK
with the terms of contracts business development
are important as the team.
absence of these activities
could result in loss A UK Head of Clinical
of contracts, thereby Governance and Compliance
having an adverse effect has been appointed who
on profits and cash is responsible for testing
flow. the Group's compliance
program.
In 2011, 69% of UK revenue
was from the NHS. In The Group continues
the 2010 Accounts the to supply to the NHS
Group has disclosed without restriction
some non-compliance and has positively engaged
issues against the compliance with the NHS to improve
requirements of relevant the service which it
framework agreements provides.
covering the supply
of locums to the NHS. The Group is responding
As a result, the NHS to the needs of the
could reduce or even NHS by offering new
terminate the Group's solutions such as HCL
ability to supply locums Clarity.
under one or all of
the Framework agreements.
In prior periods, a
substantial proportion
of supplies to the NHS
have been outside established
Framework agreements.
This is not preferred
by the NHS and the Board The National and Key
changed its policy during Account management team
2011 so that now as together with State
many locums as possible and Territory based
are supplied under the Client Service Managers
Framework agreements. monitor performance
against these contracts
In Australia, the Group and regularly discuss
is an approved "Panel" any performance issues
supplier of agency nurses with clients. Contracts
to the public health which impose targets
system in all States on HCA will normally
and Territories in Australia. include obligations
These contracts may on the client such as
be terminated immediately a limitation on the
in the event of a breach number of shifts that
or by notice. Several can be cancelled.
agreements with private
health providers contain
Key Performance Indicator
targets with termination
rights if targets are
not met.
----------------------------------- -----------------------------------
Potential impacts from
past events, including The Board continues
litigation to devote considerable
The 2010 Annual Report time to addressing the
included disclosure impacts from past events
of several serious matters and receives regular
including accounting reports from management
irregularities, potential and where necessary
illegal dividends, poor external legal counsel.
corporate governance
and potential issues The Board made provision
and a number of claims in the 2010 financial
relating to the supply statements for the probable
of locums to the NHS. settlement of the number
As a result of these of claims in respect
matters, a number of of locums supply in
disciplinary hearings the UK and continues
were held with the outcome to work through the
that certain previous open matters.
directors and other
staff were either dismissed
or chose to resign.
The Board reviews all
Two significant legal material litigation
cases have been brought in detail and takes
against the Company, advice from the Group's
which are described legal advisors.
in Note 25. The first
is a claim by Ms Bleasdale, The Board's policy is
the former CEO, for only to take or defend
GBP12m, where a hearing legal action when it
is scheduled for 10 is highly confident
April; the second, a of its position.
claim by certain US
investors has been filed
in the State of New
York and there is currently
no scheduled hearing.
The outcome of pending The Group's policy is
litigation is uncertain to co-operate with all
and an adverse ruling regulators including
could result in a material the AADB investigation.
loss and a shortage
of liquidity for the The CEO and senior operational
Group. management are actively
engaged with customers
In December 2011, the to ensure historical
Accountancy and Actuarial issues are set in context.
Disciplinary Board announced
an investigation into The Board is actively
the conduct of certain implementing higher
former directors. standards of corporate
governance.
These historical issues
may continue to have
an adverse effect on
the Group's reputation
and until the historical
issues are resolved,
customers may be reluctant
to work with the Group
and potential new investors
may be reluctant to
invest.
----------------------------------- -----------------------------------
Availability of finance
The Group is dependent The Board regularly
on the continuing availability monitors current and
of finance from its forecast compliance
banks. The Group has with its obligations
given undertakings, to the banks. Senior
including financial executives meet representatives
covenants, to which of the banks on a regular
it must adhere. Should basis to keep them appraised
it fail to meet these of the Group's performance
undertakings, the banks and future plans.
could demand early repayments
of their loans. In addition,
should an adverse judgment
be awarded in the major
litigation the Group
would be forced to seek
additional finance.
----------------------------------- -----------------------------------
IT systems and security
The Group relies on The Board mitigates
computer systems to the risks involved in
deliver its services IT systems by the following:
to customers. Any material
disruption to these - review of personnel
systems will impact in the group's IT function;
revenues as lost time - regular monitoring
for locum supplies cannot of progress on the implementation
be replaced. of new IT systems;
- regular reviews of
IT security strategy
In the UK, a new system and procedures; and
to manage the candidate - reviews of disaster
database and match candidates recovery arrangements
to opportunities is at least annually.
being implemented. Implementation
of any new system carries
certain risks, including
risk of disruption. The Group is taking
steps to enhance information
The Group's IT systems security through the
contain valuable information implementation of the
such as the candidate new front-office system
database. in the UK.
----------------------------------- -----------------------------------
Compliance
The Group has obligations In the UK a Head of
under contracts, and Clinical Compliance
in some circumstances, and Governance was appointed
under legislation to in October 2011, who
supply locums to specified reports to the CFO to
standards of clinical ensure independence
capability and to make from operational management.
checks before locums
are placed in roles. The Board receives monthly
Under some contracts, reports from the Head
especially those with of Clinical Compliance
the NHS, the compliance and Governance and reviews
requirements are extensive. the ongoing implementation
Failure to complete, of corrective measures.
maintain and refresh
those checks could lead
to legal, financial
and reputational consequences.
These matters are not
able to be insured.
----------------------------------- -----------------------------------
Availability of suitably
qualified locums
The Group has adopted The marketing departments
a growth strategy and in the UK and Australia
these growth plans assume are responsible for
that it will be possible campaigns to attract
to retain and expand new locums and retain
a pool of locums of existing locums. Divisional
sufficient skills and managing directors have
in the right locations KPIs related to the
to meet the needs of size of their locum
customers. If sufficient pools and the proportion
locums are not available that are working at
then the Group's revenue any one time. In addition,
targets will not be the Group operates a
met. number of schemes to
promote the retention
of existing locums.
----------------------------------- -----------------------------------
Exchange rate
The Group's operations The borrower of the
are principally located Group's bank debt is
in UK and Australia an Australian subsidiary
and local revenues and and the debt is denominated
costs are accounted in Australian Dollars.
for in Sterling and The debt is approximately
Australian Dollars. 50% of total Australian
The reporting currency Dollar assets before
of the Group is Sterling. debt denominated in
Australian Dollars.
The Sterling value of
the Australian results This bank debt gives
depends on the exchange a partial natural hedge
rate used to translate against translation
the results of overseas effects on profits and
operations. net assets.
The Group's bank debt
is denominated in Australian
Dollars and the Sterling
value will fluctuate
with the exchange rate
to Sterling.
Foreign exchange risk
is described more fully
in Note 22.
The Board considers
exchange rate translation
to be a principle risk
because of the relative
size of the overseas
operations in the Group
results and the potential
impact of fluctuating
exchange rates on Group
results.
----------------------------------- -----------------------------------
Other business model
risks
These risks are managed
There are other inherent on a day today basis
risks in the business by executive management
model, such as risks and are a regular part
relating to healthcare of Board discussions.
locum market demand,
recruitment and retention
of consultants, availability
of locums, and the associated
taxation legislation
risks of self employed
staff and VAT and the
use of umbrella companies
for the supply of agency
workers,
----------------------------------- -----------------------------------
Corporate Governance
As disclosed in the 2010 Annual Report, when the Chairman joined
the Board it was evident that there were extremely poor levels of
Corporate Governance under the previous Board. Additionally, there
was a lack of normal business policies and procedures and
insufficient management of costs. The level of record keeping
surrounding major decisions taken by the previous Board was well
below the standard which shareholders would expect from a publicly
listed company.
The Board is committed to maintaining high standards of
Corporate Governance, managing the Group in an effective,
entrepreneurial and ethical manner for the benefit of the
shareholders over the longer term. Under the AIM rules, the Company
is not required to implement the full provisions of the UK
Corporate Governance Code. However, the Board is committed to apply
the principles of good governance contained in the UK Corporate
Code as appropriate for a company of this size and nature. Since
the completion of the refinancing in September 2011, the Board has
been progressively putting this policy into effect and the
paragraphs below describe how the Board and its Committees are now
operating.
The Board
During 2011 the Board met many times to ensure the survival of
the Company through the reorganisation and refinancing of the
Group. The matters which the Board considered are described in more
detail elsewhere in this Annual Report but included the complete
change in the membership of the Board, investigation of accounting
irregularities, negotiation of emergency funding and the
Refinancing package, the suspension and re-listing of the Company's
shares, fundamental change in the Group's advisors, significant
change in the UK management team, the sale of the Homecare division
of HCA, and the management of important litigation and dealing with
other legacy issues.
Since September 2011, the Board has been able to concentrate
more on operational matters and now has the membership, structure
and processes to ensure good oversight in the future.
The Board will hold routine monthly meetings (except in August)
and at least one meeting per year will be in Australia. The
Chairman and the Company Secretary work together to plan the agenda
for each Board Meeting. Prior to the Board meetings, the Board is
issued with supporting papers relevant to the meeting including
monthly management accounts, briefing papers on commercial and
operational matters and major capital projects as well as reports
on relations with investors and updates on the implementation of
key strategic plans. All directors also have access to the advice
and services of the Company Secretary.
A formal schedule of matters reserved for the Board was approved
on 27 February 2012. The matters reserved for the board
include:
-- Monitoring and supervising the overall management and strategies of the Company;
-- Reviewing changes to the Company's capital structure;
-- Approving all annual budgets and financial statements;
-- Ensuring maintenance of a sound system of control and risk management;
-- Approving all acquisitions and disposals and all material contracts and capital projects;
-- Approving all resolutions and correspondence to shareholders
in connection with general meetings; and
-- Undertaking reviews of its own performance and that of its sub-committees and directors.
Monitoring Performance of the Board
It is acknowledged that all Board members need the appropriate
knowledge of the Company and access to its operations and staff to
adequately supervise the management of the Company. Presentations
and reports on commercial initiatives, the Company's industry and
its competitive position are given periodically to the Board. In
addition, from this year onwards, the Company will hold Board
meetings away from the head office, normally at least twice a year,
to provide the non-executive directors with opportunities to meet
the different divisions of the business and their operations.
During 2011, the Board received regular updates and advice from
the Company Secretary, its insurers and insurance brokers, its
legal advisors SNR Denton LLP, Manches LLP, its nominated advisors
and brokers, Hawkpoint financial services and other external
advisers.
Upon the successful completion of the Refinancing of the Group
in September 2011, the Board considered its effectiveness and
required expansion and considered the future initiatives and
responsibilities of the committees that were re-established in
2012.
The full schedule of matters reserved to the Board is available
on the Company's website, www.hclplc.com.
Audit Committee
Alan Walker (Chairman) and Alasdair Liddell served on the
Committee from 1 January 2011 to the dates of leaving the Board.
David Henderson (Chairman), Peter Sullivan and Mark Andrews are the
current members of the Committee which they joined from the date of
their respective appointments as Non-executive directors. Colin
Whipp was a member of the Committee during the period that he was
an Executive Director. While the Committee will in the future only
be comprised of Non-executive directors, Colin's membership was
deemed appropriate given the nature of the work that the Committee
was undertaking during this period.
Some of its key responsibilities are to:
-- ensure that the appropriate financial reporting procedures are properly maintained;
-- consider the annual appointment of the external auditor and
assess the independence of the external auditor;
-- review the need for an internal audit function and, if
appropriate, the resources devoted to internal audit
activities;
-- review the Company's compliance with regulatory requirements
and the procedures for handling allegations from whistleblowers and
the detection of fraud;
-- review management's reports on the effectiveness of systems
for internal financial control, financial reporting and risk
management; and
-- review accounts, review and approve accounting policies
The Committee met 9 times during the year and took the leading
role in supervising the investigation of the accounting
irregularities announced in January 2011 and working with the
Company's then auditors to finalise the 2010 financial statements
which included liaising with the Financial Reporting Panel to
address irregularities relating to accounting policies adopted in
2009/2010 under the old Board. In addition, the Committee reviewed
the Group's accounting policies and approved the 2011 Interim
Accounts and was involved in a substantial tender exercise to
engage its new auditors for the Company, Deloitte. Those invited to
tender were BDO, Deloitte, KPMG, Ernst & Young and PwC.
Attendance
The Committee's policy is to meet at least twice a year.
The records of attendance during 2011 are:
Name of Committee No. of Meetings No. of Meetings
Member could have attended attended
------------------- --------------------- ----------------
David Henderson
(Chairman) 9 9
Peter Sullivan 9 6
Colin Whipp 8 8
Mark Andrews 1 1
Remuneration Committee
In the light of the number of Board meetings during 2011, the
Company did not form a Remuneration Committee and the whole board
participated in the discussions normally delegated to a
Remuneration Committee.
The Company established a Remuneration Committee on 27 January
2012 which is constituted in accordance with the recommendations of
the UK Corporate Governance Code. The members of the committee are
Mark Andrews (Chairman), David Henderson and Peter Sullivan. The
Committee has met three times in 2012 and those meetings were
attended by its full membership.
Apart from Mark Andrews, whose interest is discussed in Note 26,
none of the Committee has any personal financial interest (other
than as shareholders), conflicts of interests arising from
cross-directorships or day-to-day involvement in running the
business.
The Committee's purpose is to review the performance of the
Executive Directors and other senior executives and to determine
appropriate levels of remuneration.
The remuneration and emoluments of Executive Directors are
determined by the Board based on the recommendations of the
Remuneration Committee.
Nomination Committee
During 2011 the role of the Nomination Committee was performed
by the Board. In November 2011, the Board set up a new Nomination
Committee which did not meet until 2012. The current members are
Peter Sullivan (Chairman), David Henderson and Mark Andrews. As at
the date of this Report, the Committee has met once in 2012, to
consider and recommend the appointment of Sue Bygrave to the
Board.
The Committee makes recommendations on all new Board
appointments.
Some of its key responsibilities are to:
-- evaluate the balance of skills, knowledge and experience on
the Board and, in the light of this evaluation, prepare a
description of the role and capabilities required for a particular
appointment;
-- use performance evaluation to assess whether non-executive
directors are spending enough time to fulfil their duties;
-- consider candidates from a wide range of backgrounds with a
wide range of capabilities and experience; and
-- give full consideration to succession planning in the course
of its work and regularly review the structure, size and
composition (including the skills, knowledge and experience) of the
Board.
Committees' Terms of Reference.
The Board approved new terms of reference for all three
Committees in February 2012 to ensure they were in line with best
practice guidance and the Company's policies and practices. The
full terms of reference can be reviewed on the Company's website,
www.hclplc.com.
Internal Controls
In the 2010 Annual Report, the Board reported deficiencies in
corporate governance, financial and operating controls, including
compliance controls. Since the Refinancing in September 2011, the
Board and senior management have been able to devote more attention
to improving the overall control environment structure with
particular focus on the operations of the UK businesses.
The Board is responsible for the Group's risk management process
and its system of internal controls. Day-to-day responsibility for
embedding controls is delegated to executive and senior management.
Any system of internal control (encompassing strategic, financial,
operational, compliance controls and risk management) is designed
to manage but not eliminate risk as the Group seeks to achieve its
objectives. The control framework should provide reasonable but not
absolute assurance that the Group's assets and reputation are
safeguarded and not subject to material loss or misstatement.
The Board has reviewed the control environment in 2011 and up to
the date of this report. Significant steps have been taken to
improve the overall structure of the control environment: the
Chairman has led the appointment of a new Board; the schedule of
matters reserved for the Board has been introduced; Board
committees have renewed terms of reference. The Board has reviewed
and considered the principal risks, and is implementing risk
management and reporting procedures for these risks. In particular,
the improvement of UK clinical compliance has been a major focus
area, supported by the appointment of a UK Head of Clinical
Governance and Compliance in October 2011. The Board has considered
whether the restatements to the 2010 financial statements represent
material losses. The restatements relate to HCA acquisition
accounting matters and an isolated calculation error in the Social
Care impairment review. The restatements have no future cash impact
for the group. 2012 will see a review and reshaping of resources in
the finance department under the leadership of Sue Bygrave, who was
appointed Chief Financial Officer on 6 February 2012. During the
remainder of 2012, the UK control environment will also be improved
by the planned implementation of revisions to the corporate
structure to reduce the number of active legal entities, the
rolling out of a new IT front-office system (Itris) that will
assist in embedding enhanced controls and standard policies and
procedures.
Healthcare Locums plc
Unaudited Consolidated Statement of Comprehensive
Income
For the year ended 31 December
2011
----------------------------------------- ----- -------- ------------
Restated(1)
2011 2010
Note GBPm GBPm
----------------------------------------- ----- -------- ------------
Revenue 4 227.1 154.9
Cost of sales (177.4) (114.2)
------------
Gross profit 4 49.7 40.7
Operating expenses (50.8) (43.7)
Highlighted items:
Goodwill impairment 12 - (51.4)
Net exceptional operating expenses 5 (9.6) (4.8)
----------------------------------------- ----- -------- ------------
Total operating expenses (60.4) (99.9)
-------- ------------
Loss from operations (10.7) (59.2)
Finance income 7 24.8 2.0
Finance expense 7 (27.0) (6.4)
-------- ------------
Loss before taxation from continuing
operations 1 (12.9) (63.6)
Tax benefit from continuing
operations 8 2.6 2.5
-------- ------------
Loss for the year from continuing
operations (10.3) (61.1)
Profit for the year from discontinued
operations, net of tax 9 1.4 -
Loss for the year attributable
to owners of the parent (8.9) (61.1)
-------- ------------
Other comprehensive income:
Share issue costs (2.3) -
Release of deferred losses
on cash flow hedges - 0.7
Tax relating to cash flow hedge
reserve - (0.3)
Translation adjustment 0.3 (0.2)
Total other comprehensive (loss)/income (2.0) 0.2
----------------------------------------- ----- -------- ------------
Total comprehensive loss for
the year (10.9) (60.9)
----------------------------------------- ----- -------- ------------
Loss per share for loss attributable
to the owners of the parent
Basic and diluted - continuing
business (pence) 10 (3.1) (56.2)
Adjusted basic - continuing
business (pence) 10 (3.9) (5.1)
Basic and diluted - discontinued
business (pence) 10 0.4 -
----------------------------------------- ----- -------- ------------
(1) 2010 figures have been restated for the revised
impairment of goodwill and other assets in the
UK Social Care division (Note 1). In addition
the amounts credited or charged in the various
headings for the operations of the Homecare division
have been moved to profit for the year from discontinued
operations - a net GBPnil result - as the Homecare
division was sold in 2011 (Note 9).
Unaudited Consolidated Statement
of Financial Position as
at 31 December 2011
Restated(1)
2011 2010 2009
Note GBPm GBPm GBPm
------------------------------------ ----- ------- ------------- -------
ASSETS
Non-current assets
Goodwill 12 39.8 46.2 60.3
Other intangible assets 13 53.9 75.6 3.5
Property, plant and equipment 14 2.0 2.5 1.0
Deferred tax asset 21 - - 1.7
95.7 124.3 66.5
------- ------------- -------
Current assets
Trade and other receivables 16 29.9 37.1 27.3
Current tax receivable 3.0 - -
Cash and cash equivalents 14.2 10.6 4.1
47.1 47.7 31.4
------- ------------- -------
Total assets 142.8 172.0 97.9
------------------------------------ ----- ------- ------------- -------
LIABILITIES
Current liabilities
Trade and other payables 17 (25.5) (33.5) (18.4)
Borrowings:
Short term borrowings 18 - (0.1) (11.6)
Current portion of long
term borrowings 19 (0.9) (114.4) (4.3)
Derivative financial liabilities 22 (1.7) (1.7) (0.8)
Current tax payable - (0.5) (5.6)
Deferred consideration 20 (1.5) - -
Provisions 20 (2.7) (5.0) -
(32.3) (155.2) (40.7)
------- ------------- -------
Non-current liabilities
Borrowings 19 (39.3) (0.5) (5.5)
Deferred tax liability 21 (9.2) (14.3) (1.7)
Provisions 20 (2.1) (2.1) -
(50.6) (16.9) (7.2)
------- ------------- -------
Total liabilities (82.9) (172.1) (47.9)
------------------------------------ ----- ------- ------------- -------
TOTAL NET ASSETS 59.9 (0.1) 50.0
------------------------------------ ----- ------- ------------- -------
SHARE CAPITAL AND RESERVES ATTRIBUTABLE TO THE
OWNERS OF THE PARENT
Share capital 24 84.8 11.3 10.5
Share premium reserve 55.2 45.3 34.5
Cash flow hedge reserve - - (0.7)
Share option reserve 1.2 4.7 1.1
Translation reserve 0.1 (0.2) -
Retained earnings (81.4) (61.2) 4.6
------------------------------------ ----- ------- ------------- -------
TOTAL EQUITY 59.9 (0.1) 50.0
------------------------------------ ----- ------- ------------- -------
(1) Restated for amounts
as reported in Note 1.
Unaudited Consolidated Statement
of Changes in Equity
Cash
flow Share
Share Share hedge option Translation Retained
capital premium reserve reserve reserve earnings Total
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ----- --------- --------- --------- --------- ------------ ---------- -------
Balance
at 1 January
2009 10.5 34.3 (1.0) 0.6 - 4.2 48.6
Profit for
the year - - - - - 3.0 3.0
Other comprehensive
income - - 0.3 - - 0.3 0.6
Dividends - - - - - (3.8) (3.8)
Issue of
share capital - 0.2 - - - - 0.2
Deferred
tax recognised
on share
based payment - - - - - 0.9 0.9
Credit in
respect
of share
scheme charges - - - 0.5 - - 0.5
--------- --------- --------- --------- ------------ ---------- -------
Balance
at 31 December
2009 10.5 34.5 (0.7) 1.1 - 4.6 50.0
Loss for
the year - - - - (54.4) (54.4)
Other comprehensive
income for
the year - - 0.7 - (0.2) (0.3) 0.2
Dividends 11 - - - - - (3.6) (3.6)
Issue of
share capital 24 0.8 10.8 - - - - 11.6
Deferred
tax recognised
on share
based payment - - - - - (0.8) (0.8)
Warrants
issued during
the year 23 - - - 3.0 - - 3.0
Credit in
respect
of share
scheme charges - - - 0.6 - - 0.6
--------- --------- --------- --------- ------------ ---------- -------
Balance
at 31 December
2010 (as
previously
reported) 11.3 45.3 - 4.7 (0.2) (54.5) 6.6
Prior year
adjustment 1 (6.7) (6.7)
Balance
at 31 December
2010 (restated) 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 11 - - - - - (2.1) (2.1)
Issue of
share capital 24 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 23 - - - (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
--------------------- ----- --------- --------- --------- --------- ------------ ---------- -------
Unaudited Consolidated Statement
of Cash Flows
For the year ended 31 December
2011
--------------------------------------- ------- ------------
Restated(1)
2011 2010
GBPm GBPm
--------------------------------------- ------- ------------
Cash flows from operating
activities
Loss for the year (8.9) (61.1)
Adjustments for:
Discontinued operation (1.4) -
Loss/(gain) on fair value
changes in contingent consideration 2.9 (4.2)
Depreciation of property,
plant and equipment 1.1 0.6
Amortisation of intangible
assets 6.4 1.7
Goodwill impairment - 51.4
Impairment of property plant
and equipment - 0.7
Impairment of other intangible
assets - 2.7
Finance income (24.8) (2.0)
Finance expense 27.0 6.4
Share based payments (credit)
/ charges (0.5) 0.6
Corporation tax benefit (2.6) (2.5)
--------------------------------------- ------- ------------
Cash flows from operating
activities before changes
in working capital (0.8) (5.7)
Changes in receivables 2.8 10.3
Changes in payables (1.4) (1.0)
--------------------------------------- ------- ------------
Cash generated from operations 0.6 3.6
Corporation tax paid (2.5 ) (4.0)
------- ------------
Net cash flows from operating
activities (1.9) (0.4)
--------------------------------------- ------- ------------
Investing activities
Interest received 0.1 1.5
Acquisition of subsidiaries,
net of cash acquired - (89.8)
Disposal of Homecare division 20.3 -
Disposal of property, plant
and equipment 0.1 -
Contingent and deferred
consideration paid (2.7) -
Acquisition of property,
plant and equipment (0.9) (1.3)
Acquisition of intangible
assets (0.2) (0.5)
Net cash received from /
(used in) investing activities 16.7 (90.1)
--------------------------------------- ------- ------------
Financing activities
Issue of ordinary shares 56.2 11.7
New loans acquired 38.9 140.5
Loans repaid (83.9) (24.9)
Interest and similar expenses
paid (14.4) (4.7)
Loan fees (5.7) (7.7)
Dividends paid to the owners
of the parent (2.1) (3.6)
Net cash (used in) / provided
by financing activities (11.0) 111.3
--------------------------------------- ------- ------------
Net increase in cash and
cash equivalents 3.8 20.8
Cash and cash equivalents
(including short-term borrowings)
at the beginning of the
year 10.5 (7.5)
Effect of exchange rates
on cash and cash equivalents (0.1) (2.8)
--------------------------------------- ------- ------------
Cash and cash equivalents
(including short-term borrowings)
at the end of the year 14.2 10.5
--------------------------------------- ------- ------------
(1) Restated for amounts as reported in Note 1.
Notes
1 General Information and Prior Year Restatement
Healthcare Locums plc is a Company incorporated in the United
Kingdom under the Companies Act 2006 ("the Act"). The Company is
listed on the Alternative Investment Market of the London Stock
Exchange.
The financial information set out in the unaudited preliminary
financial statements has been prepared in accordance with the
recognition and measurement criteria of International Financial
Reporting Standards (IFRS) issued by the International Accounting
Standards Board as adopted by the European Union, and does not
itself contain sufficient information to comply with IFRS. The
accounting policies applied in preparing this financial information
are consistent with the Group's financial statements for the year
ended 31 December 2010 except in relation to the mandatory adoption
of new accounting standards and revisions and amendments to
existing accounting standards, none of which had any significant
impact on the Group's results or financial position.
The financial information for the year ended 31 December 2010
has been derived from the statutory accounts for that year which
have been delivered to the Registrar of Companies. Those for the
year ended 31 December 2011 will be delivered following the
company's annual general meeting. The auditor's report on the
accounts for the year ended 31 December 2010:
-- was qualified in respect of a limitation in scope relating to
whether a GBP5.2m impairment of Information Technology systems
should have been booked in 2010 or earlier;
-- drew attention by way of emphases of matter to a material
uncertainty which may cast significant doubt about the company's
ability to continue as a going concern and potential illegality of
dividends (2010); and
-- contained a statement under s498(2) (relating to accounting
records) and s498(3) Companies Act 2006 (failure to obtain
information and explanations).
The auditors have not yet reported on the accounts for the year
ended 31 December 2011, but the auditors have indicated that their
report will include:
-- a qualification in respect of a limitation in scope relating
to whether a GBP5.2m impairment of Information Technology systems
should have been booked in 2010 or earlier;
-- 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 (Note 25); and
-- a statement under s498 (3) Companies Act 2006 (failure to
obtain information and explanations) with respect to the limitation
of scope above.
The primary financial statements and the majority of figures in
the notes are presented in Pounds Sterling ("GBP") because that is
the currency of the primary economic environment in which the Group
operates. Where it is considered useful and appropriate certain
figures for the operations of the Australian business are disclosed
in the notes in Australian Dollars ("A$").
Overseas operations are included in accordance with the policies
set out in Note 3.
This unaudited preliminary announcement was approved by the
Board and authorised for issue on 1 April 2012.
Prior year restatement
During the preparation of the Unaudited
Consolidated Financial Statements for
the year ended 31 December 2011, it
became apparent that the recognition
of a deferred tax liability of GBP9.6m
(A$15.1m converted at rates ruling on
the acquisition dates), on trademarks
and other intangible assets of GBP31.8m
(A$50.1m) recognised on the acquisition
of LML and HCA had been omitted. As
a result a restatement is required in
the acquisition balance sheets to recognise
this liability on the dates of acquisition
of 1 August 2010 and 20 December 2010
respectively, with goodwill increasing
by GBP9.6m at the date of acquisition.
In addition, an escrow amount of GBP0.8m
(A$1.2m) from a prior acquisition by
HCA had been omitted and has also been
included in the restated receivables
on the acquisition balance sheet, with
goodwill reducing by GBP0.8m at the
date of acquisition.
In addition, when completing the accounts
for the consolidated Australian tax
group for the tax year to June 2011
it was determined that the deferred
tax asset estimate in the acquisition
balance sheet was understated by GBP1.1m
(A$ 1.7m) and the estimate in the acquisition
balance sheet has been corrected, with
goodwill increasing by GBP1.1m at the
date of acquisition.
A summary of the restatement entries
is as follows:
Acquisition 31 December
date Forex 2011
A$m GBPm GBPm GBPm
------- ------------ ------ ------------
Goodwill 15.6 9.9 0.3 10.2
Receivables 1.2 0.8 - 0.8
Deferred tax asset (1.7) (1.1) - (1.1)
Deferred tax liability (15.1) (9.6) (0.3) (9.9)
Also during the preparation of the Unaudited Consolidated
Financial Statements for the year ended 31 December 2011 a clerical
error in the 2010 calculation of the value in use of the UK Social
Care division was discovered which, had the error not occurred,
would have meant the impairment of the goodwill and assets
associated with that division would have increased by GBP7.1m. A
prior year adjustment has been booked to correct this misstatement,
reducing goodwill by GBP5.4m, other intangible assets by GBP1.4m,
tangible fixed assets by GBP0.3m, deferred tax liability by GBP0.4m
and retained earnings at 31 December 2010 by GBP6.7m.
The combined impact of the above prior year adjustments on the
loss from operations and loss for the year ended 31 December 2010
was as follows:
Loss Loss
from for the
operations year
GBPm GBPm
------------ ---------
As reported for the year
ended 31 December 2010 (52.1) (54.4)
Goodwill and asset impairment
of Social Care division (7.1) (7.1)
Deferred tax - 0.4
------------ ---------
As restated for the year
ended 31 December 2010 (59.2) (61.1)
------------ ---------
The combined impact of the above prior year adjustments on the
relevant figures in the Consolidated Statement of Financial
Position at 31 December 2010 was as follows:
As previously Impact
reported of restatements Restated
GBPm GBPm GBPm
-------------- ----------------- ---------
Goodwill 41.4 4.8 46.2
Other intangible assets 77.0 (1.4) 75.6
Property, plant and equipment 2.8 (0.3) 2.5
Trade and other receivables 36.3 0.8 37.1
Deferred tax liability (3.7) (10.6) (14.3)
-------------- ----------------- ---------
Total restatements (6.7)
-----------------
Profit and loss for the
year (54.4) (6.7) (61.1)
-------------- ----------------- ---------
Profit and loss reserve (54.5) (6.7) (61.2)
-------------- ----------------- ---------
The Group presents adjusted earnings per share in Note 10. The
calculation for the year ended 31 December 2010 was misstated as
detailed in that note.
2 Adoption of New and Revised Standards
In the current year, the following new and revised Standards and
Interpretations have been adopted and have affected the amounts
reported in these results.
Standards affecting the Unaudited Preliminary Financial
Statements
IFRIC 19 - Extinguishing The Interpretation provides guidance
Financial Liabilities on the accounting for "debt for
with Equity Instruments equity swaps" from the perspective
of the borrower.
As discussed in Note 23c the Group
extinguished debt by issuing equity
instruments as part of the Refinancing.
As a result of this a gain of GBP9.9m
was recognised within finance income.
------------------------- -----------------------------------------
Standards not affecting the unaudited preliminary reported
results or the financial position
The following new and revised Standards and Interpretations have
been adopted in the current year. Their adoption has not had any
significant impact on the amounts reported in these Preliminary
Financial Statements but, with the exception of the amendment to
IFRS 1 should the accounting for the Company (as opposed to the
Group) be amended to IFRS, may impact the accounting for future
transactions and arrangements.
Amendment to IFRS The amendment provides a limited
1 - Limited Exemption exemption for first-time adopters
from Comparative from providing comparative fair-value
IFRS 7 Disclosures hierarchy disclosures under IFRS
for First-time 7.
Adopters
------------------------ -----------------------------------------
IAS 24 (2009) The revised Standard has a new,
- Related Party clearer definition of a related
Disclosures party, with inconsistencies under
the previous definition having been
removed.
------------------------ -----------------------------------------
Amendment to IAS Under the amendment, rights issues
32 - Classification of instruments issued to acquire
of Rights Issues a fixed number of an entity's own
non-derivative equity instruments
for a fixed amount in any currency
and which otherwise meet the definition
of equity are classified as equity.
------------------------ -----------------------------------------
Amendments to The amendments now enable recognition
IFRIC 14 - Prepayments of an asset in the form of prepaid
of a Minimum Funding minimum funding obligations.
Requirement
------------------------ -----------------------------------------
Improvements to The amendments made to standards
IFRSs 2010 under the 2010 improvements to IFRSs
have had no impact on the Group.
------------------------ -----------------------------------------
At the date of authorisation of these Unaudited Preliminary
Financial Statements the following Standards and Interpretations
which have not been applied in these Financial Statements were in
issue but not yet effective (and in some cases had not yet been
adopted by the EU):
IFRS 1 (amended) Severe Hyperinflation and Removal
of Fixed Dates for First-time
Adopters
----------------- -------------------------------------
IFRS 7 (amended) Disclosures: Transfers of Financial
Assets
----------------- -------------------------------------
IFRS 9 Financial Instruments
----------------- -------------------------------------
IFRS 10 Consolidated Financial Statements
----------------- -------------------------------------
IFRS 11 Joint Arrangements
----------------- -------------------------------------
IFRS 12 Disclosure of Interests in Other
Entities
----------------- -------------------------------------
IFRS 13 Fair Value Measurement
----------------- -------------------------------------
IAS 1 (amended) Presentation of Items of Other
Comprehensive Income
----------------- -------------------------------------
IAS 12 (amended) Deferred tax: Recovery of Underlying
Assets
----------------- -------------------------------------
IAS 19 (revised) Employee Benefits
----------------- -------------------------------------
IAS 27 (revised) Separate Financial Statements
----------------- -------------------------------------
IAS 28 (revised) Investments in Associates and
Joint Ventures
----------------- -------------------------------------
IFRIC 20 Stripping Costs in the Production
Phase of a Surface Mine
----------------- -------------------------------------
The Directors do not consider that the adoption of the above
standards will have a material impact on the Financial Statements
of the Group in future periods.
3 Significant Accounting Policies
(a) Basis of accounting
The Unaudited Consolidated Preliminary Financial Statements have
been prepared in accordance with International Financial Reporting
Standards as adopted by the European Union ("EU") and therefore the
Unaudited Consolidated Financial Statements comply with Article 4
of the EU IAS Regulation.
The Unaudited Consolidated Preliminary Financial Statements have
been prepared under the historical cost basis, except for
derivative financial instruments which are stated at their fair
value. Historical cost is generally based on the fair value of the
consideration given in exchange for the assets. The principal
accounting policies adopted are set out below.
(b) Basis of consolidation
The Unaudited Consolidated Preliminary Financial Statements
incorporate the Financial Statements of the Company and entities
controlled by the Company (its subsidiaries) made up to 31 December
each year. Control is achieved where the Company has the power to
govern the financial and operating policies of an investee entity
so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the
year are included in the Unaudited Consolidated Statement of
Comprehensive Income from the effective date of acquisition or up
to the effective date of disposal, as appropriate. Where necessary
the accounting policies of subsidiaries are changed to ensure
consistency with the policies adopted by the Group. All intra-Group
transactions, balances, income and expenses are eliminated on
consolidation.
(c) Going concern
The Directors have adopted the going concern basis of accounting
in preparing the Unaudited Preliminary Financial Statements.
Further details of the Directors' consideration of the specific
circumstances of the Group, and details of the material
uncertainties which may cast significant doubt over the Group's and
Company's ability to continue as a going concern are included in
the Financial Review.
(d) Business combinations
Acquisitions of subsidiaries and businesses are accounted for
using the acquisition method. The consideration for each
acquisition is measured at the aggregate of the fair values (at the
date of exchange) of assets given, liabilities incurred or assumed
and equity instruments issued by the Group in exchange for control
of the acquiree. Acquisition-related costs are expensed as
incurred.
Where applicable, the consideration for the acquisition includes
any asset or liability resulting from a contingent consideration
arrangement, measured at its acquisition-date fair value.
Subsequent changes in such fair values are adjusted against the
cost of acquisition where they qualify as measurement period
adjustments (see below). All other subsequent changes in the fair
value of contingent consideration classified as an asset or
liability are accounted for in accordance with relevant IFRSs.
Changes in the fair value of contingent consideration classified as
equity are not recognised.
The acquiree's identifiable assets, liabilities and contingent
liabilities that meet the conditions for recognition under IFRS
3(2008) are recognised at their fair value at the acquisition date,
except that:
-- deferred tax assets or liabilities and liabilities or assets
related to employee benefit arrangements are recognised and
measured in accordance with IAS 12 - Income Taxes and IAS 19 -
Employee Benefits respectively;
-- liabilities or equity instruments related to the replacement
by the Group of an acquiree's share-based payment awards are
measured in accordance with IFRS 2 - Share-based Payment; and
-- assets (or disposal groups) that are classified as held for
sale in accordance with IFRS 5 - Non-current Assets Held for Sale
and Discontinued Operations are measured in accordance with that
standard.
The measurement period is the period from the date of
acquisition to the date the Group obtains complete information
about facts and circumstances that existed at the acquisition date,
and is subject to a maximum of one year.
(e) Revenue recognition
Revenue represents the amounts earned from the provision of
services to external customers during the reporting period - the
time of provision of services being the point at which the amount
of revenue can be measured reliably and when it is probable that
the economic benefits will flow to the Group. Revenue is stated at
invoiced amounts less value added tax or local taxes on sales, plus
revenue earned but unbilled which is included as accrued income in
receivables.
-- Revenue from temporary placements, which represents revenue
for the services of temporary staff, is recognised when the
services have been provided. Revenue includes the salary costs of
the temporary staff unless paid directly by the client in which
case revenue represents commission only; and
-- Revenue from permanent placements is recognised at the date
when a candidate commences work. Appropriate provision is made for
the expected cost of meeting obligations where employees do not
work for the specified contractual period.
(f) Foreign currency
Revenues generated by the Group entities in a currency other
than the currency of the primary economic environment in which they
operate (their "functional currency") are recorded at the rates
ruling when the transactions occur. Foreign currency receivables
are retranslated at the rates ruling at each reporting date.
Exchange differences arising on the retranslation of unsettled
receivables are recognised immediately in the Consolidated
Statement of Comprehensive Income.
On consolidation, the results of overseas operations are
translated into Sterling at average rates. All assets and
liabilities of overseas operations, including goodwill arising on
the acquisition of those operations, are translated at the rate
ruling at the period end. All exchange differences arising on
translation are recognised in the Consolidated Statement of
Comprehensive Income and accumulated in the translation
reserve.
In preparing the financial statements of each individual group
entity, transactions in currencies other than the entity's
functional currency (foreign currencies) are recognised at the
rates of exchange prevailing at the dates of the transactions. At
the end of each reporting period, monetary items denominated in
foreign currencies are retranslated at the rates prevailing at that
date. Non-monetary items carried at fair value that are denominated
in foreign currencies are retranslated at the rates prevailing at
the date when the fair value was determined. Non-monetary items
that are measured in terms of historical cost in a foreign currency
are not retranslated.
(g) Share-based payments
The Group operates an equity-settled, share-based compensation
plan. When share options are awarded to employees a charge is made
to the profit or loss recognising on a straight line basis the fair
value of the options issued over the vesting period with a
corresponding adjustment to share option reserve, based on the
Group's estimate of the number of equity instruments that will
eventually vest. The options vest after a specific period (3 years
for options issued from 2006 onwards, 1 year for options issued
earlier). There are no other vesting conditions, other than that
the options lapse should the employee leave the Group. The
cumulative expense is adjusted for failure to achieve non-market
vesting conditions, such as an employee leaving.
(h) Employee benefits
Contributions to the Group's defined contribution pension
schemes are charged to the Consolidated Statement of Comprehensive
Income in the period in which they become payable.
The liability for Long Service Leave in respect of employees in
Australia is recognised by way of a provision and measured at the
present value of expected future payments to be made in respect of
services provided by employees up to the end of the reporting
period using the projected unit credit method. Consideration is
given to expected future wage and salary levels, experience of
employee departures and periods of service. Expected future
benefits payable more than 12 months after the period-end are
discounted using market yields at the end of the reporting period
on national government bonds with terms to maturity and currency
that match, as closely as possible, the estimated future cash
outflows. Where data specific enough to calculate a provision as
described above is not available provision is made for Long Service
Leave on an estimated basis.
(i) Taxation
The charge for current taxation is provided at rates of
corporation tax that have been enacted or substantively enacted by
the reporting date. Current tax is based on taxable profits for the
year and any adjustments to tax payable in respect of previous
years. Taxable profit differs from net profit as reported in the
Consolidated Statement of Comprehensive Income because it excludes
items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or
deductible.
Deferred tax is provided, using the liability method, on all
temporary differences which result in an obligation at the
reporting date to pay more tax, or a right to pay less tax, at a
future date, based on tax rates and tax laws that have been enacted
or substantively enacted at that date. Temporary differences arise
between the tax bases of assets and liabilities and their carrying
amounts in the financial statements. The exceptions, where deferred
tax assets are not recognised or deferred tax liabilities provided,
are:
-- at initial recognition of goodwill;
-- the initial recognition of an asset or liability in a
transaction that is not a business combination and, at the time of
the transaction, affects neither the accounting profit or loss nor
taxable profit or loss; and
-- taxable temporary differences associated with investments in
subsidiaries where the timing of the reversal of the temporary
difference can be controlled and it is probable that the temporary
difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow
all or part of the deferred income tax asset to be utilised.
(j) Goodwill
Goodwill arising in a business combination is recognised as an
asset at the date that control is acquired (the acquisition date).
Goodwill is measured as the excess of the sum of the consideration
transferred, the amount of any non-controlling interest in the
acquiree and the fair value of the acquirer's previously held
equity interest (if any) in the entity over the net of the
acquisition-date amounts of the identifiable assets acquired and
the liabilities assumed.
If, after reassessment, the Group's interest in the fair value
of the acquiree's identifiable net assets exceeds the sum of the
consideration transferred, the amount of any non-controlling
interest in the acquiree and the fair value of the acquirer's
previously held equity interest in the acquiree (if any), the
excess is recognised immediately in the Statement of Comprehensive
Income as a bargain purchase.
Goodwill is not amortised but is reviewed for impairment at
least annually. For the purposes of impairment testing, goodwill is
allocated to each of the Group's cash-generating units expected to
benefit from the synergies of the combination. Cash-generating
units to which goodwill has been allocated are tested for
impairment annually, or more frequently when there is an indication
that the unit may be impaired. If the recoverable amount, being the
value in use or - where reliably measurable - fair value less costs
to sell, of the cash-generating unit is less than the carrying
amount of the unit, the impairment loss is allocated first to
reduce the carrying amount of any goodwill allocated to the unit
and then to the other assets of the unit pro-rata on the basis of
the carrying amount of each asset in the unit. An impairment loss
recognised for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill
is included in the determination of the profit or loss on
disposal.
(k) Other intangible assets
Intangible assets (other than goodwill) acquired by the Group as
part of a business combination are stated at fair value and are
amortised on a straight-line basis over their expected useful
lives. The amortisation is shown as part of administrative expenses
within the Consolidated Statement of Comprehensive Income.
Internally generated intangible assets arising from the Group's
development of software are recognised only if all of the following
conditions are met:
-- an asset is created that can be identified;
-- it is probable that the asset created will generate future economic benefits; and
-- the development cost of the asset can be measured reliably.
Internally generated intangible assets are amortised on a
straight-line basis over their useful lives, commencing on the date
they come into use.
The estimated useful lives are as follows:
Brands/trademarks - 20 years
Customer relationships - Over the contractual term or 6 years in
absence of a specified term
Computer software - 3 to 5 years
Acquired candidate database - 3 to 10 years
Knowledge database - 2 years
Non-compete agreements - 5 years
Intangible assets, other than goodwill, with finite lives are
subject to impairment tests whenever events or changes in
circumstances indicate that their carrying amount may not be
recoverable. When the carrying value of an asset exceeds its
recoverable amount, being the value in use or - where reliably
measurable - fair value less costs to sell, the asset is written
down accordingly. Impairment of other intangible assets is included
in operating expenses in the Consolidated Statement of
Comprehensive Income.
(l) Property, plant and equipment
Items of property, plant and equipment are initially recognised
at cost. As well as the purchase price, cost includes directly
attributable costs. All items are carried at depreciated cost.
Depreciation is provided on a straight-line basis to write off
the cost, less estimated residual values, of property, plant and
equipment over their expected useful lives. It is calculated at the
following rates:
Improvements to leasehold buildings - Over the lease term
Motor vehicles - 4 years
Office and computer equipment - 3 to 8 years
An asset's carrying amount is written down immediately to its
recoverable amount if the carrying amount is greater than its
estimated recoverable amount.
(m) Impairment of assets
A financial asset is assessed at each reporting date to
determine whether there is any objective evidence that it is
impaired. A financial asset is considered to be impaired if
objective evidence indicates that one or more events has had a
negative effect on the estimated future cash flows of that asset.
For certain categories of financial assets, such as trade
receivables, assets that are assessed not to be impaired
individually are subsequently assessed for impairment on a
collective basis. Objective evidence of impairment for a portfolio
of receivables could include the Group's past experience of
collecting payments, an increase in the number of delayed payments
in the portfolio, as well as observable changes in national or
local economic conditions that correlate with default on
receivables.
The carrying amount of the financial asset is reduced by the
impairment loss directly for all financial assets with the
exception of trade receivables, where the carrying amount is
reduced through the use of an allowance account. When a trade
receivable is considered uncollectible, it is written off against
the allowance account. Subsequent recoveries of amounts previously
written off are credited against the allowance account. Changes in
the carrying amount of the allowance account are recognised in the
Consolidated Statement of Comprehensive Income.
(n) Leased assets
Where substantially all of the risks and rewards incidental to
ownership of a leased asset have been transferred to the Group (a
'finance lease'), the asset is treated as if it had been purchased
outright. The amount initially recognised as an asset is the lower
of the fair value of the leased property and the present value of
the minimum lease payments payable over the term of the lease, each
determined at the inception of the lease. The corresponding lease
commitment is shown in the Consolidated Statement of Financial
Position as a finance lease obligation.
Lease payments are apportioned between finance expenses and
reduction of the finance lease obligation so as to achieve a
constant rate of interest on the remaining balance of the
liability. Finance expenses are recognised immediately in the
Consolidated Statement of Comprehensive Income.
Where substantially all of the risks and rewards incidental to
ownership are not transferred to the Group (an 'operating lease'),
the total rentals payable under the lease are charged to the
Consolidated Statement of Comprehensive Income on a straight-line
basis over the lease term. The aggregate benefit of lease
incentives is recognised as a reduction of the rental expense over
the lease term on a straight line basis. Provision is made for
dilapidation costs expected to be incurred at the end of the lease
term under tenant repairing leases.
(o) Sales ledger credits
From time to time in the United Kingdom the Group receives
payments which are in excess of the amounts which the Group's
accounting records show as due. The reasons include duplicate
payments, credit notes not taken by customers and payments by
customers who are "self billing" which are higher than our
calculation of the amounts due. These matters are investigated and
wherever possible the overpayments are resolved with the paying
client and appropriate accounting entries made. If, after actively
seeking to resolve the balance, it remains unresolved beyond the
period set out in the Statute of Limitations (six years), the
amount is credited to the Consolidated Statement of Comprehensive
Income. The balance of sales ledger credits at the period end is
shown within creditors.
(p) Financial instruments
Financial assets and financial liabilities are recognised in the
Group's Statement of Financial Position when the Group becomes a
party to the contractual provision of the instrument.
The Group classifies its financial assets and liabilities into
one of the following categories, depending on the purpose for which
the asset or liability was acquired. The Group's accounting policy
for each category is as follows:
Financial assets:
Receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They
arise principally through the provision of services to customers
(trade receivables). They are initially recognised at fair value
and subsequently at amortised cost. Impairment provisions are
recognised where there is evidence that the Group will be unable to
collect all of the amounts due under the terms of the receivable.
Trade receivables are reported net of impairment provisions, which
due to the nature of the customer base are not significant. The
Group's receivables comprise trade and other receivables in the
Consolidated Statement of Financial Position.
Cash and cash equivalents include cash in hand, deposits held at
call with banks and bank overdrafts. Bank overdrafts are shown
within current liabilities on the Consolidated Statement of
Financial Position and are included within cash and cash
equivalents for the purposes of the Consolidated Statement of Cash
Flows.
Derivative financial instruments and hedging activities:
Derivatives, including the embedded derivative within the Zero
Coupon Loan Note, are initially recognised at fair value on the
date a derivative contract is entered into and are subsequently
remeasured at their fair value through the Consolidated Statement
of Comprehensive Income unless the derivative is designated in a
hedging relationship.
The Group holds a number of interest rate instruments,
protecting a portion of the Group's borrowings against movements in
interest rates. Hedge accounting is applied to financial assets and
financial liabilities only where all of the following criteria are
met:
-- At the inception of the hedge there is a formal designation
and documentation of the hedging relationship and the Group's risk
management objective and strategy for undertaking the hedge.
-- For cash flow hedges, the hedged item in a forecast
transaction presents an exposure to variations in interest cash
flows that could ultimately affect profit or loss on their
scheduled payment dates.
-- The cumulative change in the value of the hedging instrument
is expected to be between 80-125% of the cumulative change in the
fair value or cash flows of the hedged item attributable to the
risk hedged (i.e. it is expected to be highly effective).
-- The effectiveness of the hedge can be reliably measured.
-- The hedge remains highly effective on each date it is tested.
The Group tests the effectiveness of its hedges twice a year, at
each external reporting date.
The Group only holds one derivative instrument which is not an
economic hedge, the interest rate swap as required as part of the
Refinancing.
Cash flow hedge: Effective hedges which are used to manage cash
flow interest rate risk are measured at fair value with changes in
fair value recognised directly in equity. The gain or loss relating
to any ineffective portion is recognised directly in the
Consolidated Statement of Comprehensive Income within finance
income or expense. When a hedging instrument expires or is sold, or
when a hedge no longer meets all the criteria for hedge accounting,
hedge accounting is stopped immediately and any cumulative gain or
loss existing in equity at that time remains in equity and is
recognised when the forecast transaction is ultimately recognised
in the Consolidated Statement of Comprehensive Income. When a
forecast transaction is no longer expected to occur, the cumulative
gain or loss that was reported in equity is immediately transferred
to the Consolidated Statement of Comprehensive Income within
finance income or expense.
There were no new financial instruments entered into during the
year ended 31 December 2011 that were effective hedges and
therefore hedge accounting was not applied.
Other financial liabilities:
Trade payables and other short-term monetary liabilities: These
are initially recognised at fair value and subsequently at
amortised cost.
Zero coupon loan notes: These are initially recognised at fair
value, being the present value at the time of issue of future cash
payments to extinguish the instrument. They are subsequently
measured at amortised cost using the effective interest method,
with interest expense recognised on an effective yield basis.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
over the relevant period. The effective interest rate is the rate
that exactly discounts estimated future cash payments through the
expected life of the financial liability, or, where appropriate, a
shorter period, to the net carrying amount on initial
recognition.
Bank borrowings: These liabilities are initially recognised at
the amount advanced net of any transaction costs directly
attributable to the issue of the instrument. The costs of raising
the financing are offset against the loan amount and are amortised
over the term of the loan and are included within finance costs on
the face of the Consolidated Statement of Comprehensive Income.
When loans are refinanced drawings under the existing facilities
are either extinguished or modified. Where facilities are
extinguished the balance of unamortised fees are written off to
Finance Expense. Where modified the unamortised fees are carried
forward in the Consolidated Statement of Financial Position to be
written off over the term of the modified facilities.
(q) Provisions and contingent liabilities
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle that
obligation and a reliable estimate can be made of the amount of the
obligation.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the date
of the Consolidated Statement of Financial Position, taking into
account the risks and uncertainties surrounding the obligation.
Where a provision is measured using the cash flows estimated to
settle the present obligation, its carrying amount is the present
value of those cash flows.
Obligations arising under onerous contracts are recognised and
measured as provisions. An onerous contract is considered to exist
where the Group has a contract under which the unavoidable costs of
meeting the obligations under the contract exceed the economic
benefits expected to be received under it.
A restructuring provision is recognised when the Group has
developed a detailed formal plan for the restructuring and has
raised a valid expectation in those affected that it will carry out
the restructuring by starting to implement the plan or announcing
its main features to those affected by it. The measurement of a
restructuring provision includes only the direct expenditures
arising from the restructuring, which are those amounts that are
both necessarily entailed by the restructuring and not associated
with the ongoing activities of the Group.
Contingent liabilities are possible obligations which arise from
past events and whose existence will be confirmed only by the
occurrence or non-occurrence of one or more uncertain future events
not wholly within the control of the Group. Provision is not made
for any liability which could arise in the future, but significant
contingent liabilities are reported in Note 25.
(r) Share capital
Financial instruments issued by the Group are treated as equity
only to the extent that they do not meet the definition of a
financial liability. The Group's ordinary shares are classified as
equity instruments.
(s) Dividends
Final dividends are recognised as a liability in the year in
which they are declared and approved by the Company's shareholders
in the annual general meeting. Interim dividends are recognised
when they are paid.
(t) Parent company
The Financial Statements of the parent company Healthcare Locums
plc have been prepared in accordance with UK GAAP.
(u) Highlighted items.
Where certain items of operating expense or income recorded in a
period are material by their size or incidence, the Group reflects
such items as highlighted items and these are shown separately in
the Statement of Comprehensive Income and disclosed in detail in
the Notes to the Financial Statements. Highlighted items may
include costs associated with restructuring the business,
incremental costs of staff working directly on restructuring and
refinancing, one off gains and losses, impairment of goodwill and
intangible assets. In addition amounts of finance income or expense
which are material by their size or incidence are disclosed in
detail in the Notes to the Financial Statements .
(v) Adjusted operating profit
Adjusted operating profit is operating profits before
share-based payments charges or credits and before highlighted
items. The Board considers adjusted operating profit to be a better
indicator of performance than operating profit as highlighted
items, being exceptional in their nature by virtue of size or
incidence, distort the results of the underlying business. Adjusted
EBITDA is adjusted operating profit before charging depreciation
and amortisation.
(w) Critical accounting judgements and key sources of estimation uncertainty
The Group makes estimates and assumptions regarding the future.
Estimates and judgements are continually evaluated based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances. In the future, actual experience may differ from
these estimates and assumptions. The estimates and assumptions that
have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year are discussed below.
Measurement of intangible assets and contingent consideration on
acquisition. The allocation of the purchase price and valuation of
contingent consideration requires management to make significant
estimates in determining fair values, especially for intangible
assets and contingent consideration. These estimates are based on
historical experience, information obtained from the management of
the acquired businesses, relevant market and industry data and the
forecast performance of the acquired businesses. These estimates
can include, but are not limited to, the cash flows that an asset
is expected to generate in the future, the appropriate discount
rate, the useful lives of intangible assets and probabilities of
achievement of financial targets under contingent consideration
arrangements. These estimates are inherently uncertain and
unanticipated events and circumstances may occur, which may affect
the accuracy or validity of such estimates. To assist in making
these significant estimates, the Company engages expert
professional valuers to assist with material acquisitions.
Management monitors the carrying values of assets and adjustments
are made if future market conditions indicate that such adjustments
are appropriate.
Impairment of goodwill. The Group is required to test, on at
least an annual basis, whether goodwill has suffered any
impairment. The recoverable amount is determined based on the
higher of value in use calculations or the fair value less costs to
sell method. These both require the estimation of future cash flows
and the choice of a discount rate in order to calculate the present
value of the cash flows. Actual outcomes may vary. More information
on carrying values is included in Note 12.
Contractual claims and regulatory contingencies. The Group
conducts its business principally in the UK and Australia and
contractual claims or regulatory proceedings may arise. The Group
estimates and provides for potential losses that may arise out of
litigation and regulatory proceedings to the extent that such
losses are probable and can be estimated in accordance with IAS 37
- Provisions, Contingent Liabilities and Contingent Assets.
Contingencies in respect of these matters are subject to many
uncertainties and the outcome of individual matters is not
predictable with assurance. Significant judgment is required in
assessing probability and making estimates in respect of
contingencies, and the Group's final liability may ultimately be
materially different from that estimated. Provisions in respect of
legal claims, contractual and regulatory proceedings are determined
on a case by case basis and represent an estimate of probable
losses after considering, among other factors, the progress of each
case, the Group's experience of others in similar cases and the
views of legal counsel. Where no estimate can be reliably made of
the likely outcome of any claims, and they are potentially
material, those claims are disclosed as contingent liabilities
(Note 25).
Uncertain tax positions.Uncertain tax positions may arise where
the Directors have had to make particular judgments in relation to
certain tax treatments. Based on the status of enquiries with the
relevant tax authorities and consideration of tax legislation, the
Group estimates and provides for potential losses that may arise
from uncertain income tax positions to the extent that such losses
are probable and can be estimated, in accordance with IAS 12 -
Income Taxes. However, significant judgment is required in making
these estimates, particularly in relation to the recovery of
losses, and the Group's final liabilities may ultimately be
materially different.
Estimation of useful economic lives of long-lived assets.The
economic life used to amortise intangible assets and depreciate
property, plant and equipment relates to the future performance of
the assets in question and management's judgment of the period over
which the economic benefit will be derived from the asset.
As at 31 December 2011, the amount of property, plant and
equipment included in the Unaudited Consolidated Statement of
Financial Position was GBP2.0m (2010: GBP2.5m).
As at 31 December 2011, the amount of intangible assets included
in the Unaudited Consolidated Statement of Financial Position was
GBP53.9m (2010: GBP75.6m).
Employee benefits provision. In Australia employees, including
locums, are entitled to long service leave after 10 years service
(subject to specific rules and conditions which vary state by
state). In determining the amount of the employee benefits
provision, representing the value of expected future payments to be
made in respect of services provided by employees up to the date of
the Unaudited Consolidated Statement of Financial Position, the
Directors consider salary levels, the past experience of employee
departures and periods of service. As at 31 December 2011, the
amount provided in the Unaudited Consolidated Statement of
Financial Position was GBP2.8m (2010: GBP3.6m).
Zero Coupon Loan Notes. The Zero Coupon Loan Notes were issued
during the year as part of the Refinancing. The nominal value of
the Zero Coupon Loan Notes was discounted to fair value at a rate
of 15% which the Directors considered fairly represented the return
a non-Senior lender would seek from the Company for a loan maturing
in September 2021. The Directors assessed at the date of issue and
at the year end the likelihood of further Zero Coupon Loan Notes
being issued if future EBITDA or enterprise value targets are
achieved.
4 Segmental Analysis
The segmental analysis provided below represents the information
presented to the Board of Directors, which is the Chief Operating
Decision Maker as defined by IFRS 38.
In the UK the Group provides locum recruitment services for
health and social care staff, being Doctors, Nurses, Allied Health
Professionals (AHP) and Qualified Social Workers (QSW). The
permanent placement business which places staff in each of these
sectors is managed as a separate segment. Australia is also managed
as a separate, single segment. During the year ended 31 December
2011 placement of theatre nurses, which was previously included
within AHP was moved to the Nurses segment. Prior year segmental
information has been restated to reflect the current reporting
structure.
The Board views these six as its principal business segments and
regularly reviews information on the revenue, cost of sales and
gross profits of each of these business segments. The Board
considers gross profit to be its current, consistent measure for
determining segment profitability, it being the contribution
generated towards overheads. It does not receive segment
information on the costs below gross profit or on assets and
liabilities by segment. For 2012 operating costs will be charged to
each division, either directly or by a central allocation, and this
enhanced divisional analysis will be reported in accounts beginning
with the Interim Results for the six months to June 2012.
Year Restated Restated
ended Year ended year ended year ended
31 December 31 December 31 December 31 December
2011 2011 2010 2010
Gross Gross
Revenue profit Revenue profit
GBPm GBPm GBPm GBPm
----------------------------- ------------- ------------- ------------- -------------
UK:
Locum doctors 25.5 3.7 33.7 6.3
Locum qualified social
workers 26.5 4.6 35.6 6.8
Locum allied health
professionals (restated) 30.6 8.2 47.0 14.7
Locum nursing (restated) 25.2 6.9 26.3 7.0
Permanent placements 2.6 2.6 3.9 3.9
Inter-segment (0.1) - (0.6) (0.4)
------------- ------------- ------------- -------------
Total UK 110.3 26.0 145.9 38.3
Australia 116.8 23.7 9.0 2.4
------------- ------------- ------------- -------------
Continuing operations 227.1 49.7 154.9 40.7
------------- -------------
Operating expenses (50.8) (43.7)
Goodwill impairment - (51.4)
Net exceptional operating
expenses (9.6) (4.8)
------------- -------------
Loss from operations (10.7) (59.2)
Finance income 24.8 2.0
Finance expense (27.0) (6.4)
----------------------------- ------------- ------------- ------------- -------------
Loss before taxation
from continuing operations (12.9) (63.6)
----------------------------- ------------- ------------- ------------- -------------
Inter-segment adjustments represent removal of the overlapping
commission revenue from placements recognised by two or more
segments, revenue and cost of sales not allocable to the reported
segments and measurement differences between the basis used to
report invoiced transactions to the chief operating decision maker
and the basis used in the Group Financial Statements.
The geographical distribution of the non-current
assets of the Group as at 31 December was as follows:
UK Australia Other Total
2011 GBPm GBPm GBPm GBPm
--------------------------- ------ ----------- ------ ------
Property, plant and
equipment 0.8 1.2 - 2.0
Goodwill 19.5 20.3 - 39.8
Other intangible assets 4.7 49.2 - 53.9
--------------------------- ------ ----------- ------ ------
Total 25.0 70.7 - 95.7
--------------------------- ------ ----------- ------ ------
UK Australia Other Total
2010 (Restated) GBPm GBPm GBPm GBPm
--------------------------- ------ ----------- ------ ------
Property, plant and
equipment 0.9 1.5 0.1 2.5
Goodwill 19.5 26.7 - 46.2
Other intangible assets 5.7 69.9 - 75.6
Total 26.1 98.1 0.1 124.3
--------------------------- ------ ----------- ------ ------
At 31 December 2009 all the assets of the Group were in the
UK.
Separate entities operating as registered NHS Trusts in the UK
are considered a single customer by the Group. Of the total Group
revenue, NHS Trusts accounted for 32.4% (2010: 66.1%). The decrease
is due to the inclusion of a full year's revenue from HCA. There
were no other single customers contributing more than 10% of Group
revenue in 2011 or 2010.
As an additional voluntary disclosure the analysis of operating
expenses is as follows:
Year ended Year ended
31 December 31 December
2011 2010
GBPm GBPm
---------------------------------- --------------- ---------------
UK based administration expenses
(incl corporate) 28.8 38.5
Depreciation, amortisation
and share scheme movements 1.0 2.5
29.8 41.0
---------------------------------- --------------- ---------------
Australia based administration
expenses 15.0 2.3
Depreciation and amortisation 6.0 0.4
21.0 2.7
---------------------------------- --------------- ---------------
Total 50.8 43.7
---------------------------------- --------------- ---------------
5 Net Exceptional Operating Expenses
Restated
Year ended Year ended
31 December 31 December
2011 2010
GBPm GBPm
------------------------------------------- ------------- -------------
Exceptional operating income/(expense):
Reorganisation and refinancing
costs:
Restructuring costs (1.8) (0.3)
Refinancing additional costs (0.7) -
Australia - integration costs (0.6) (0.4)
Onerous leases (0.7) (0.7)
------------- -------------
(3.8) (1.4)
(Loss) / gain on fair value changes
in contingent and deferred consideration
(Note 15) (2.9) 4.2
Investigation and resolution of (2.9) -
accounting irregularities
Acquisition related transaction
costs (Note 15) - (2.8)
Costs related to advice concerning
possible disposal of business - (1.4)
Impairment of property, plant
and equipment (Note 14) - (0.7)
Impairment of other intangible
assets (Note 13) - (2.7)
------------------------------------------- ------------- -------------
Net exceptional operating expenses (9.6) (4.8)
------------------------------------------- ------------- -------------
Reorganisation and refinancing costs in 2011 include:
Restructuring costs primarily relate to redundancies and office
relocation costs.
Refinancing additional costs includes the incremental costs of
staff wholly, or predominantly, involved in work related to the
Refinancing.
The investigation and resolution of the accounting
irregularities includes external professional advisers and the
incremental costs of staff wholly, or predominantly, involved in
work relating to the investigation.
The 2010 figures are restated for the additional impairment of
the fixed assets of the Social Care division as reported in Note 1.
The reorganisation costs in 2010 principally included employee
redundancy costs, relocation of offices associated with the ongoing
off-shoring of back and middle office functions to India and also
the ongoing restructuring within the Qualified Social Workers
division. Provision for onerous lease contracts in 2010 were as a
result of lease liabilities acquired on the acquisitions of Orion
and MJV, for which the Group then decided to close the offices
following the acquisitions.
The tax effect of the above exceptional items is a tax credit of
GBP0.1m for Australia (2010:GBPnil). There is no tax effect in
relation to the UK exceptional items (2010: GBP1.2m credit)..
6 Loss From Operations
Loss from operations for the year has been arrived
at after charging/(crediting) the following:
-----------------------------------------------------------------------
Year ended Year ended
31 December 31 December
2011 2010
GBPm GBPm
----------------------------------------- ------------- -------------
Amortisation of other intangible
assets 6.4 1.7
Depreciation of property, plant
and equipment 1.1 0.6
Foreign exchange losses (0.6) (0.6)
Hire of other assets - operating
leases 0.7 0.9
Share-based payments scheme
(credits) /charges (0.5) 0.6
Gain on disposal of property,
plant and equipment (0.1) -
Fees payable to the Company's
current auditor for:
- audit of the Company's annual 0.2 -
accounts
- audit of the Company's subsidiaries 0.1 -
Fees payable to the Company's
previous auditor for:
- audit of the Company's annual
accounts - 0.5
- audit of the Company's subsidiaries 0.1 0.2
- other services - 0.1
----------------------------------------- ------------- -------------
7 Finance Income and Expense
Year ended Year ended
31 December 31 December
2011 2010
Finance income GBPm GBPm
---------------------------------------- ------------- -------------
Exceptional finance income:
Refinancing - difference between -
fair value of shares issued to
Ares Lux and the mezzanine finance
retired (Note 23c) 9.9
Fair value adjustment on Zero 7.7 -
Coupon Loan Note (Note 23e)
Forex on Refinancing 0.3 -
Bank debt waived (Note 23f) 5.9 -
Accrued interest payable written 0.6 -
off in Refinancing (Note 23f)
------------- -------------
24.4 -
Interest received on bank deposits 0.1 -
Foreign exchange gains 0.2 1.5
Gain on fair value changes in
derivative financial instruments 0.1 0.5
---------------------------------------- ------------- -------------
24.8 2.0
---------------------------------------- ------------- -------------
Year ended Year ended
31 December 31 December
2011 2010
Finance expense GBPm GBPm
---------------------------------------- ------------- -------------
Exceptional finance expense:
Bank fees relating to debt repaid 4.4 -
written off (Note 23g)
Professional fees of Banks' advisers 3.0 -
(Note 23h)
Advisers fees on the Refinancing 2.5 -
(Note 23h)
Warrant option written off (Note 2.6 -
19)
Arrangement fee on ACE Limited 0.2 -
facility (Note 23b)(iv))
------------- -------------
12.7 -
Bank loans and overdrafts 14.0 3.7
Loss on fair value changes in
derivative financial instruments - 2.5
Finance lease interest 0.2 0.2
Imputed interest on Zero Coupon 0.1 -
Loan Notes (Note 22)
---------------------------------------- ------------- -------------
27.0 6.4
---------------------------------------- ------------- -------------
The Group did not apply, in either 2011 or 2010, cash flow hedge
accounting in respect of the derivative financial instruments
previously designated in a hedge relationship or to new instruments
acquired during the year. Accordingly, all fair value changes were
recognised in the Unaudited Consolidated Statement of Comprehensive
Income. Gains and losses recognised in other comprehensive income
in prior years were recycled to the Unaudited Consolidated
Statement of Comprehensive Income upon settlement of related
hedging instruments in 2010.
8 Tax benefit
Year ended Restated
31 December Year ended
2011 31 December
2010
GBPm GBPm
--------------------------------------- ------------- -------------
UK corporation tax - current year - -
UK corporation tax - prior year (0.8) -
Group relief re Homecare (0.4) -
Carry back to prior year - (1.1)
Current tax credit (1.2) (1.1)
------------- -------------
Deferred tax
Origination and reversal of temporary
differences (1.4) (1.4)
------------- -------------
Total tax benefit (2.6) (2.5)
--------------------------------------- ------------- -------------
The tax benefit assessed for the period is lower than the
standard rate of corporation tax in the UK. The differences are
explained below:
Year Restated
ended Year ended
31 December 31 December
2011 2010
GBPm GBPm
----------------------------------------- ------------- -------------
Loss before taxation including
discontinued operations (11.1) (63.6)
----------------------------------------- ------------- -------------
Tax at the standard rate of corporation
tax in the UK of 26.5 % (2010
- 28%) (2.9) (17.8)
Effects of:
Expenses not deductible for tax
purposes 3.4 12.3
Non-taxable income (3.0) -
Over provision in prior years (0.8) -
Tax related to discontinued operations (0.4) -
Unrecognised potential deferred
tax assets 1.4 3.0
Impact of overseas tax (0.3) -
----------------------------------------- ------------- -------------
Total tax benefit for the year (2.6) (2.5)
----------------------------------------- ------------- -------------
9 Profit for the Year 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 Homecare
Division to KinCare Health Services Pty. Limited. The sale was
completed on 18 July 2011.
The disposal enables HCL to focus on the development of the core
UK and Australian businesses and realise value from non-core
elements of the business, which would have required further
investment to realise their true potential. The net proceeds were
used to reduce the Group's debt.
The net assets sold comprised:
GBPm
------------------------------- ------
Property, plant and equipment 0.2
Intangible assets - goodwill 6.6
Intangible assets - other 15.9
Deferred tax asset 0.4
Trade and other receivables 4.4
Cash and cash equivalents -
Assets sold 27.5
------
Trade and other payables (1.6)
Short term provisions (1.8)
Long term provisions (0.2)
Deferred tax liability (4.3)
Liabilities transferred (7.9)
------
Net assets sold 19.6
------------------------------- ------
Disposal proceeds 22.7
Costs of sale (2.4)
Net proceeds of disposal 20.3
------------------------------- ------
Net gain on disposal 0.7
------------------------------- ------
There was no tax effect of the disposal.
The results of trading and cash flows for the current year to
the date of disposal, and the prior year from the date of
acquisition were as follows:
1 January
to 20 December
17 July to 31 December
2011 2010
GBPm GBPm
-------------------------- ---------- ----------------
Revenue 16.3 2.3
Cost of sales (11.5) (1.7)
---------- ----------------
Gross profit 4.8 0.6
Administrative expenses (3.3) (0.5)
Other operating expenses (0.4) (0.1)
---------- ----------------
Profit from operations 1.1 -
Finance expense (net) - -
---------- ----------------
Profit before taxation 1.1 -
Tax expense (0.4) -
-------------------------- ---------- ----------------
Profit for the period 0.7 -
-------------------------- ---------- ----------------
Operating cash flows 1.3 0.3
Financing cash flows (0.1) -
-------------------------- ---------- ----------------
Total cash flows 1.2 0.3
-------------------------- ---------- ----------------
10 Earnings Per Share
Restated
year
Year ended ended
31 December 31 December
2011 2010
Number Number
'000 '000
----------------------------------------- ------------- -------------
Number of ordinary 10p shares
Weighted average number of
shares 334,075 108,768
----------------------------------------- ------------- -------------
Calculation of adjusted earnings GBPm GBPm
for the year:
----------------------------------------- ------------- -------------
Loss for the year from continuing
operations (10.3) (61.1)
------------- -------------
Adjustments:
Goodwill impairment - 51.4
Net exceptional operating
expenses (Note 5) 9.6 4.8
Share-based payment (credits)/charges (0.5) 0.6
Exceptional finance income (24.4) -
Exceptional finance expense 12.7 -
------------- -------------
(2.6) 56.8
Tax effect of above items (0.1) (1.2)
Post tax adjustments (2.7) 55.6
------------- -------------
Adjusted loss for the year
from continuing operations (13.0) (5.5)
----------------------------------------- ------------- -------------
Earnings per share from continuing Pence Pence
operations
----------------------------------------- ------------- -------------
Basic and dilutive earnings
per share (3.1) (56.2)
Adjusted basic earnings share (3.9) (5.1)
----------------------------------------- ------------- -------------
GBPm GBPm
Profit for the year from discontinued 1.4 -
operations
----------------------------------------- ------------- -------------
Earnings per share from discontinued Pence Pence
operations
----------------------------------------- ------------- -------------
Basic and dilutive earnings 0.4 -
per share
----------------------------------------- ------------- -------------
The restatement of the 2010 earnings per share relates to the
prior year adjustment of the Social Care goodwill and other asset
impairments as disclosed in Note 1 and a correction of the
calculated tax effect of the adjustments as noted below. The
amounts reported last year were 50.0p for basic and diluted loss
per share and 18.5p for adjusted basic and diluted loss per
share.
During the preparation of the Unaudited Consolidated Financial
Statements for the year ended 31 December 2011, it became apparent
that the tax effect of the adjusting items for earnings per share
(EPS) purposes presented in Note 10 to the Consolidated Financial
Statements for the year ended 31 December 2010 was misstated. The
note presented the tax effect of adjusting items of GBP13.3m but
should have been GBP0.4m. The impact of this restatement would have
been to increase adjusted earnings by GBP12.9m from negative
earnings of GBP20.1m to negative earnings of GBP7.2m and increase
adjusted basic earnings per ordinary shares by 11.88p from negative
18.48p to negative 6.60p. In preparing the adjusted earnings per
share for 2011 the gain on inter-company financing with Australia
was excluded as it is not a one-off credit. The GBP1.5m booked as
an adjusting entry in the 2010 earnings per share calculation has
been eliminated.
Earnings per share from continuing and discontinued operations
in 2011 were a loss of 2.7p per share and adjusted earnings from
continuing and discontinued operations were a loss of 3.5p per
share.
At 31 December 2011, there were 175,495 (2010: 4,019,281)
potentially dilutive share options and zero (2010: 2,943,453)
potentially dilutive warrants which have not been included above as
they do not affect EPS, on the basis that they are not currently
dilutive.
11 Dividends
Year ended Year ended
31 December 31 December
2011 2010
GBPm GBPm
---------------------------------- ------------- -------------
Interim dividend of 1.8p paid
on 10 January 2011 (2010 -
1.5p paid on 1 April 2010)
per ordinary share relating
to the previous year's results. 2.1 1.6
Final dividend in 2009 of
1.9p paid on 25 June 2010
per ordinary share relating
to the previous year's results. - 2.0
2.1 3.6
---------------------------------- ------------- -------------
The Directors are not proposing a final dividend for 2011 (2010:
nil).
As reported in the Consolidated Financial Statements for the
year ended 31 December 2010 the Board became aware that certain of
the dividends paid under the management of the previous Board were
potentially unlawful.
Since the date of issue of the Consolidated Financial Statements
for the year ended 31 December 2010 further analysis has been
performed. After taking legal and accounting advice, the Board has
concluded that the dividend paid on 10 January 2011 was unlawful as
the then board should have known at the date that the dividends
were approved and paid that the Company had insufficient reserves
available to make the payment. The Board has been unable as yet to
come to a definite conclusion about the legality of the dividends
paid on 1 April and 25 June 2010. No action will be taken to
recover unlawful dividends from shareholders in general. However,
the Board is considering whether remedies are available against
former directors to recover unlawful dividends paid to them and
damages for breach of duty in authorising the relevant
dividends.
12 Goodwill
Restated
Total
GBPm
----------------------------------- ---------
Cost:
At 1 January 2009 and 31
December 2009 60.3
Additions as reported 26.5
Restatement of additions
(Notes 1 and 15) 9.9
Effect of movements in foreign
exchange (as reported) 0.6
Restatement of the effect
of movements in foreign exchange 0.3
---------
At 31 December 2010 97.6
Adjustment to acquired asset -
values
Disposals (6.5)
Effect of movements in foreign
exchange 0.1
----------------------------------- ---------
At 31 December 2011 91.2
----------------------------------- ---------
Impairment:
At 1 January 2009 and 31 -
December 2009
Charge in the year as originally
reported 46.0
Restatement (Note 1) 5.4
----------------------------------- ---------
At 31 December 2010 and 31
December 2011 51.4
----------------------------------- ---------
Carrying amount:
At 31 December 2011 39.8
----------------------------------- ---------
At 31 December 2010 46.2
----------------------------------- ---------
At 31 December 2009 60.3
----------------------------------- ---------
The carrying amount is attributable to the following
business segments:
------------------------------------------------------------------------
Restated(1)
31 December 31 December 31 December
2011 2010 2009
GBPm GBPm GBPm
----------------------------- ------------ ------------- ------------
Doctors - - 22.4
Social Care - - 20.6
Allied Health Professionals 8.0 10.7 17.3
Nursing 11.5 8.8 -
Australia 20.3 26.7 -
----------------------------- ------------ ------------- ------------
Total 39.8 46.2 60.3
----------------------------- ------------ ------------- ------------
(1) The amount reported for Australia in the 2010 Financial
Statements was GBP16.5m. Prior year adjustments as reported in
detail in Note 1 and 17 for LML of GBP0.7m and for HCA of GBP9.5m
increased the amount in the restated Consolidated Statement of
Financial Position to GBP26.7m. The amount reported for Social Care
was GBP5.4m at 31 December 2010. As reported in Note 1 this amount
has been fully impaired by a prior year adjustment.
As a result of the transfer of the theatre nurses operations
from the Allied Health Professionals segment to the Nursing segment
GBP2.7m of associated goodwill was transferred between those
segments during 2011.
At 31 December 2011 goodwill was tested for impairment. The
recoverable amounts of all the above segments were determined from
value in use calculations, based on cash flow projections from the
formally approved budget for 2012, formally approved forecasts for
2013 and 2014 and estimates for subsequent years.
The impairment charge taken in 2010 reflected a revision in the
assessment of the future cash flows from the business due to
reduced margins and changes in the NHS procurement practices.
The key assumptions in the value in use calculations for 2011
and 2010 were:
-- Risk-free rate - 2.1% (2010: 4.1%)
-- Equity market risk premium - 7.2% (2010: 5%)
-- Beta 1.195 (2010: 1.09)
-- Small stock premium 6% (2010: 5%)
-- Gross cost of debt, inclusive of amortisation of fees, 11.0% (2010: 7.2%)
-- Expected long-term tax rate - 25% UK, 30% Australia (2010: 25% and 30%)
-- Zero coupon loan notes discount rate 15% (2010 not applicable)
-- The post-tax discount rate used was 11.76% for UK operations
and 11.72% for Australian operations based on the estimated pre tax
discount rate of 15.68% (2010: 16.67%)
-- Long term revenue growth estimate 2% for the UK operations
and 2.5% for the Australian operations (2010: 2% for both the UK
and Australia)
Based on the stated assumptions there was no impairment of
goodwill at 31 December 2011. To assess the likelihood of an
impairment changes to the assumptions were made, singly and in
combination, including a 1% increase in the weighted average cost
of capital, reducing the revenue growth estimate to 2%, reducing
the gross margin by 1%. None of these indicated a need for an
impairment charge.
If the discount rate used in 2010 had been decreased or
increased by 2%, the impairment amount would have been lower by
GBP2.7m or higher by GBP2.0m, respectively.
13 Other Intangible Assets
Acquired Brands
Customer Computer candidate and Knowledge Non-compete
relationships software database trademarks database agreements Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- --------------- ---------- ----------- ------------ ---------- ------------ -------
Cost:
At 1 January
2009 4.0 6.0 - - 0.1 - 10.1
Additions - 1.6 - - - - 1.6
Disposals - (0.1) - - - - (0.1)
--------------- ---------- ----------- ------------ ---------- ------------ -------
At 31 December
2009 4.0 7.5 - - 0.1 - 11.6
Acquisitions 27.4 0.6 13.1 32.1 - 0.5 73.7
Additions - 0.5 - - - - 0.5
Disposals - (0.5) - - - - (0.5)
Effect of
movements
in foreign
exchange 0.8 - 0.4 1.0 - - 2.2
--------------- ---------- ----------- ------------ ---------- ------------ -------
At 31 December
2010 32.2 8.1 13.5 33.1 0.1 0.5 87.5
Additions - 0.4 - - - - 0.4
Transfer
to property,
plant & equipment - (0.2) - - - - (0.2)
Disposals (7.5) (6.9) (3.3) (5.3) (0.1) - (23.1)
Effect of
movements
in foreign
exchange 0.2 - 0.1 0.2 - - 0.5
-------------------- --------------- ---------- ----------- ------------ ---------- ------------ -------
At 31 December
2011 24.9 1.4 10.3 28.0 - 0.5 65.1
-------------------- --------------- ---------- ----------- ------------ ---------- ------------ -------
Amortisation:
At 1 January
2009 1.0 0.8 - - 0.1 - 1.9
Provided
for the year 0.5 0.5 - - - - 1.0
Impairment - 5.3 - - - - 5.3
Disposals - (0.1) - - - - (0.1)
--------------- ---------- ----------- ------------ ---------- ------------ -------
At 1 January
2010 1.5 6.5 - - 0.1 - 8.1
Provided
for the year 0.8 0.4 0.3 0.1 - - 1.6
Disposals - (0.5) - - - - (0.5)
Impairment
as previously
reported 0.7 0.6 - - - - 1.3
Impairment
(prior year
adjustment
(Note 1)) 1.3 0.1 - - - - 1.4
--------------- ---------- ----------- ------------ ---------- ------------ -------
At 31 December
2010 4.3 7.1 0.3 0.1 0.1 - 11.9
Provided
for the year 2.9 0.3 1.4 1.7 - 0.1 6.4
Disposals (0.3) (6.4) (0.2) (0.2) (0.1) - (7.2)
Effect of
movements
in foreign
exchange - - - 0.1 - - 0.1
-------------------- --------------- ---------- ----------- ------------ ---------- ------------ -------
At 31 December
2011 6.9 1.0 1.5 1.7 - 0.1 11.2
-------------------- --------------- ---------- ----------- ------------ ---------- ------------ -------
Net book
value:
At 31 December
2011 18.0 0.4 8.8 26.3 - 0.4 53.9
-------------------- --------------- ---------- ----------- ------------ ---------- ------------ -------
At 31 December
2010 (Restated) 27.9 1.0 13.2 33.0 - 0.5 75.6
-------------------- --------------- ---------- ----------- ------------ ---------- ------------ -------
At 31 December
2009 2.5 1.0 - - - - 3.5
-------------------- --------------- ---------- ----------- ------------ ---------- ------------ -------
At 31 December 2011 computer software included GBP0.2m under
construction (2010: GBPnil). The Group amortises intangible assets
from the date the assets are ready to use.
Bank loans are secured on all assets of the Group.
The asset lives of the material intangibles assets have been
assessed at 20 years for brands and trademarks and 10 years for the
main acquired candidate database. Customer relationships are
amortised over the life of the contracts.
14 Property, Plant and Equipment
Improvements Office
to leasehold and Computer Motor
buildings Equipment Vehicles Total
GBPm GBPm GBPm GBPm
------------------------------ -------------- -------------- ---------- ------
Cost:
At 1 January 2009 0.9 1.9 - 2.8
Additions - 0.4 - 0.4
Disposals - (0.9) - (0.9)
-------------- -------------- ---------- ------
At 31 December 2009 0.9 1.4 - 2.3
Acquisition 0.6 0.7 0.2 1.5
Additions 0.2 1.1 - 1.3
Disposals (0.2) (0.5) - (0.7)
-------------- -------------- ---------- ------
At 31 December 2010 1.5 2.7 0.2 4.4
Additions 0.3 0.4 0.7
Transfer from intangible
assets - 0.2 - 0.2
Disposals (0.3) (0.5) (0.1) (0.9)
------------------------------ -------------- -------------- ---------- ------
At 31 December 2011 1.5 2.8 0.1 4.4
------------------------------ -------------- -------------- ---------- ------
Depreciation and impairment:
At 1 January 2009 0.5 1.2 - 1.7
Provided for the year 0.1 0.4 - 0.5
Disposals - (0.9) - (0.9)
-------------- -------------- ---------- ------
At 31 December 2009 0.6 0.7 - 1.3
Provided for the year 0.1 0.5 - 0.6
Impairment as reported
in 2010 - 0.4 - 0.4
Impairment prior year
adjustment (Note 1) - 0.3 - 0.3
Disposals (0.2) (0.5) - (0.7)
-------------- -------------- ---------- ------
At 31 December 2010 0.5 1.4 - 1.9
Provided for the year 0.3 0.8 - 1.1
Disposals (0.3) (0.3) - (0.6)
------------------------------ -------------- -------------- ---------- ------
At 31 December 2011 0.5 1.9 - 2.4
------------------------------ -------------- -------------- ---------- ------
Net book value:
At 31 December 2011 1.0 0.9 0.1 2.0
------------------------------ -------------- -------------- ---------- ------
At 31 December 2010
(As restated) 1.0 1.3 0.2 2.5
------------------------------ -------------- -------------- ---------- ------
At 31 December 2009 0.3 0.7 - 1.0
------------------------------ -------------- -------------- ---------- ------
Assets included above held under
finance leases (Note 19):
Net book value:
At 31 December 2011 - 0.1 - 0.1
At 31 December 2010 0.1 0.8 - 0.9
At 31 December 2009 - 0.4 - 0.4
------------------------------ -------------- -------------- ---------- ------
Depreciation charge:
Year ended 31 December
2011 - 0.3 - 0.3
Year ended 31 December
2010 - 0.4 - 0.4
Year ended 31 December
2009 0.1 0.3 - 0.4
------------------------------ -------------- -------------- ---------- ------
Bank loans are secured on all assets of the Group.
15 Acquisitions
There were no acquisitions during the year ended 31 December
2011. However, following a further review of the assets and
liabilities acquired with Last Minute Locums Pty Limited ("LML")
and Healthcare Australia Holdings Pty Limited ("HCA"), the Group
has made prior year adjustments, as disclosed in Note 1 and in part
(e) of this note. As a result of making the prior year adjustments,
set out below is the revised table of the 2010 acquisitions:
Orion
and HCA
MJV LML Restated(1) Redwood Restated(1) Total
GBPm GBPm GBPm GBPm GBPm
----------------------------- ------ ---------------- -------- ------------- -------
Cash consideration 3.7 4.9 5.0 83.3 96.9
Contingent consideration
(at acquisition date
fair value) 4.8 1.2 1.6 - 7.6
Total consideration 8.5 6.1 6.6 83.3 104.5
----------------------------- ------ ---------------- -------- ------------- -------
Fair value of assets
and liabilities acquired:
Intangible assets:
Customer relationships 1.0 1.3 1.2 23.9 27.4
Computer software - - - 0.6 0.6
Acquired candidate
database 0.9 - 1.3 10.9 13.1
Brands and trademarks 0.9 1.8 0.4 29.0 32.1
Non-compete agreements - 0.5 - - 0.5
------ ---------------- -------- ------------- -------
2.8 3.6 2.9 64.4 73.7
Cash/(invoice discounting
balance) acquired (1.0) - - 7.6 6.6
Property plant and
equipment - - - 1.5 1.5
Trade and other receivables
originally reported 1.5 - - 16.7 18.2
Trade and other receivables
restatement - - - 0.8 0.8
Deferred tax asset
originally reported - - - 4.8 4.8
Deferred tax asset
restatement - - - (1.1) (1.1)
Trade and other payables (0.6) - - (13.8) (14.4)
Employee benefits
provision - - - (3.5) (3.5)
Current taxation (0.2) - - (0.2) (0.4)
Deferred tax liability
originally reported (0.8) (0.5) - (7.2) (8.5)
Deferred tax liability
restatement - (0.7) - (8.9) (9.6)
Net assets acquired 1.7 2.4 2.9 61.1 68.1
----------------------------- ------ ---------------- -------- ------------- -------
Goodwill as previously
stated 6.8 3.0 3.7 13.0 26.5
Goodwill restatement - 0.7 - 9.2 9.9
----------------------------- ------ ---------------- -------- ------------- -------
(1) Of the total cash consideration,
GBP562,000 was paid in January
2011.
Transaction costs
(Note 5) 0.2 0.7 0.2 1.7 2.8
----------------------------- ------ ---------------- -------- ------------- -------
During 2010, Healthcare Locums plc completed four acquisitions
and a number of amendments to the purchase consideration amounts
and terms were negotiated during the year ended 31 December 2011 as
detailed below. These resulted in the following credits / (charges)
which were reported within net exceptional operating costs in the
Unaudited Consolidated Statement of Comprehensive Income (Note
5)
a below) Orion / MJV variation
agreement (4.5)
c below) LML contingent
consideration written
off 0.9
d below) Redwood variation
agreements 0.7
(2.9)
------
(a) On 23 July 2010 the Group acquired 100% of the voting share
capital of Orion Locums Limited ("Orion"), a leading nursing and
healthcare staffing locum business in the UK, for an initial cash
consideration of GBP3,200,000 and 100% of the voting share capital
of MJV Locums Limited ("MJV") for an initial cash consideration of
GBP500,000 from a common shareholder, Craig Tibbles, who held 100%
of the issued share capital of both companies. The Group also
agreed to pay contingent consideration in cash on these
acquisitions of up to GBP5,600,000 for Orion and GBP1,400,000 for
MJV. The fair value of the contingent consideration at the time of
acquisition was GBP4,780,000.
Following a review of post-acquisition performance to 31
December 2010 the fair value was re-assessed as GBP548,000 and the
reduction was recognised as a gain of GBP4,232,000 in the
Consolidated Statement of Comprehensive Income in 2010.
On 4 January 2011 the total contingent consideration was
replaced by a fixed GBP5,000,000 of deferred consideration
(GBP2,000,000 payable in 2011 and GBP3,000,000 payable in 2012)
following the signing of a variation agreement and GBP4,452,000 was
charged to the Unaudited Consolidated Statement of Comprehensive
Income in 2011.
(b) As disclosed in Note 23b as part of the Refinancing Craig
Tibbles agreed to accept 25,000,000 New Ordinary Shares in return
for releasing HCL from paying GBP1,000,000 of the deferred
consideration due in 2011 and GBP1,500,000 of the deferred
consideration due in 2012. As part of the same agreement the
remaining GBP2,500,000 due to Craig Tibbles was amended to
GBP1,000,000 payable on 3 October 2011 and GBP900,000 payable on 1
October 2012, or, at Craig Tibbles' election, GBP800,000 on 1 June
2012. The balance of GBP600,000 was released to the Unaudited
Consolidated Statement of Comprehensive Income to cover matching
costs and asset write offs including an assessment of underpaid VAT
due to input tax having been incorrectly calculated prior to the
acquisition.
(c) On 1 August 2010 HCL International Pty Ltd (a wholly owned
Australian subsidiary of Healthcare Locums plc) acquired the
business and assets of Last Minute Locums Pty. Ltd. ("LML"), an
established Australian medical staffing business with a database of
over 3,500 qualified doctors, for an initial cash consideration of
A$7,850,000 (GBP4,834,000) and a contingent consideration based on
post-acquisition results of up to a maximum of A$5,000,000. At the
date of acquisition the fair value of the contingent consideration
was assessed to be A$2,000,000 (GBP1,232,000). Exchange rate
movements to 31 December 2010 increased the contingent
consideration in Sterling terms to GBP1,309,000. During 2011
additional consideration was earned, based on exceeding the
post-acquisition results targets, of A$275,291 (2010: A$298,161)
and both of these amounts were paid during the year. The likelihood
of meeting the remaining targets has been reviewed and the balance
of the contingent consideration, amounting to A$1,426,548 (GBP0.9m)
has been written off to the Unaudited Consolidated Statement of
Comprehensive Income in 2011.
(d) On 19 August 2010 Medical Technical Ltd (a wholly owned
subsidiary of Healthcare Locums plc) acquired the business and
certain of the assets of Redwood Health Limited (subsequently
renamed as Dancorp Limited "Dancorp") for an initial cash
consideration of GBP5,000,000 and a contingent consideration of up
to a maximum of GBP1,650,000. The fair value of the contingent
consideration at the date of acquisition was GBP1,650,000. This was
a related party transaction as set out in Note 31.
On 25 March 2011 the total contingent consideration was replaced
by GBP1,328,194 of deferred consideration following the signing of
a variation agreement and GBP321,806 was credited to the Unaudited
Consolidated Statement of Comprehensive Income in the year ended 31
December 2011. GBP650,000 was paid during the year ended 31
December 2011 and agreement was reached with the administrators of
Dancorp before 31 December 2011 to settle the balance of the
deferred consideration by a final payment of GBP325,000 (paid after
the year-end) with the remaining GBP353,194 credited to the
Unaudited Statement of Comprehensive Income in the year ended 31
December 2011, making the total amount credited in the year
GBP675,000.
(e) On 20 December 2010 the Company acquired the entire share
capital of Healthcare Australia Holdings Pty Ltd ("HCA"). The
acquisition, from certain CHAMP Private Equity funds and a small
number of private individuals, was completed for a total cash
consideration of A$131,200,000 (approximately GBP83,345,000, of
which GBP562,000 was deferred and paid in 2011). HCA was
established in 2004 and is a leading provider of nursing agency
staff to public and private health institutions in Australia.
Approximately 40% of healthcare in Australia is provided by the
private sector.
As reported in Note 1, a review during the year ended 31
December 2011 identified that deferred tax liabilities on
trademarks and other intangible assets had not been recognised in
the acquisition balance sheets of LML and HCA. These deferred tax
liabilities have now been recognised as a prior year adjustment. In
addition a provision from a prior acquisition by HCA was recognised
but not an associated asset, a GBP0.8m (A$1.2m) escrow account,
which matched the liability. In addition when completing the
accounts for the consolidated Australian tax group for the year to
June 2011 it was determined that the deferred tax estimate in the
acquisition balance sheet was understated by GBP1.1m (A$1.7m) and
the estimate in the acquisition balance sheet has been corrected.
Goodwill, receivables and the net deferred tax liability at 31
December 2010 were increased by GBP10.2m, GBP0.8m and GBP11.0m
respectively.
Transaction costs were all expensed .
The acquisitions represented a significant step towards
implementing a stated strategy of the previous Board of
establishing a significant presence in the UK nursing recruitment
market and pursuing international acquisitions which will generate
additional revenue outside of the UK. The completion of the
acquisitions significantly broadened HCL's international
operations.
16 Trade and Other Receivables
Restated(1)
31 December 31 December 31 December
2011 2010 2009
GBPm GBPm GBPm
------------------- ------------ ------------- ------------
Trade receivables 25.1 28.6 17.6
Other receivables 0.6 3.1 5.0
Prepayments 1.0 0.7 1.2
Accrued income 3.2 4.7 3.5
------------------- ------------ ------------- ------------
29.9 37.1 27.3
------------------- ------------ ------------- ------------
(1) Other receivables were reported in the Financial Statements
at 31 December 2010 as GBP2.3m. They have been restated to GBP3.1m
following the recognition of a GBP0.8m (A$1.2m) escrow account of
HCA omitted from the Acquisition Balance Sheet (Note 1 and Note
15e).
All amounts shown under receivables fall due for payment within
one year. The ageing analysis of the trade receivables and the
amounts denominated in currencies other than Sterling are set out
in Note 22. There are no differences between book value and fair
value of these trade and other receivables at either reporting
date.
17 Trade and Other Payables
31 December 31 December 31 December
2011 2010 2009
GBPm GBPm GBPm
------------------------ ------------ ------------ ------------
Trade creditors 5.8 6.6 2.1
Other taxes and social
security 2.4 7.7 5.8
Accruals 9.0 10.6 5.2
Deferred income 0.2 0.6 -
Sales ledger credits 4.3 4.3 3.3
Other creditors 3.8 3.7 2.0
------------------------ ------------ ------------ ------------
25.5 33.5 18.4
------------------------ ------------ ------------ ------------
There are no differences between book value and fair value of
these trade and other payables at either reporting date.
18 Short Term Borrowings
31 December 31 December 31 December
2011 2010 2009
GBPm GBPm GBPm
--------------------- ------------- ------------ ------------
Bank overdraft - 0.1 -
Invoice discounting - - 11.6
--------------------- ------------- ------------ ------------
- 0.1 11.6
----------------------------------- ------------ ------------
19 Loans and Long Term Borrowings
31 December 31 December 31 December
2011 2010 2009
GBPm GBPm GBPm
-------------------------- ------------ ------------ ------------
Non-current:
Sterling denominated:
Secured bank loans - - 5.6
Zero coupon loan notes 2.6 - -
Obligations under
finance leases 0.1 0.5 0.1
Unamortised debt issue
costs - - (0.2)
Australian Dollar
denominated:
Secured bank loans 38.2 - -
Unamortised debt issue (1.6) - -
costs
-------------------------- ------------ ------------ ------------
Total non-current
borrowings 39.3 0.5 5.5
-------------------------- ------------ ------------ ------------
Current portion of
long-term debt
Sterling denominated:
Secured bank loans - 81.5 4.3
Obligations under
finance leases 0.3 0.4 0.2
Unamortised debt issue
costs - (5.3) (0.2)
Fair value of warrants - (2.9) -
Australian Dollar
denominated:
Secured bank loans 1.3 43.0 -
Unamortised debt issue
costs (0.7) (2.3) -
-------------------------- ------------ ------------ ------------
Total current borrowings 0.9 114.4 4.3
-------------------------- ------------ ------------ ------------
When preparing the 2010 Consolidated Financial Statements the
Board believed it was probable that as at 31 December 2010 the
Group was in default under the Senior Facility Agreement ("SFA")
and the Mezzanine Facility Agreement ("MFA") with its lenders. If a
default did exist then the lenders would have had the right, on
service of a notice, to require the loans drawn under the SFA and
the MFA to be repaid immediately. In those specific circumstances
it was considered appropriate to classify all the Group's loans as
current liabilities. Following the completion of the Refinancing
the Group is not in default and so for 31 December 2011 the
portions of the loans repayable after 31 December 2012 have been
reported as non-current liabilities.
There are no differences between the book value and the fair
value of the loans and long-term borrowings at either date.
The Group capitalised total fees of GBP0.7m (2010: GBP7.7m) paid
for the loans modified during the year. Fees are amortised using
the effective interest method over the term of the respective
loans. The loans to which the capitalised fees at 31 December 2010
above relate were either repaid, hence derecognised, during the
year and the appropriate proportion of unamortised fees were
charged to Finance Costs, or modified in which case the appropriate
proportion of fees at the time of the modification were carried
forward.
The Zero Coupon Loan Notes are stated at fair value, being the
fair value recognised at date of issue plus the imputed interest to
31 December 2011. More details are set out in Note 23e.
The warrants recognised at fair value at 31 December 2010 were
partly amortised during the year through Finance Expense, and the
balance of GBP2.6m outstanding at the date of Refinancing lapsed as
part of the Refinancing at the time the derecognition of the
mezzanine facility and so have been written off to Finance Expense
(Note 7).
The finance leases are secured on the assets to which they
relate. The carrying values of these assets are disclosed in Note
14.
Future lease payments are due as follows:
Minimum
lease Present
payments Interest value
2011 2011 2011
GBPm GBPm GBPm
-------------------------------------------------- ---------- --------- --------
Not later than one year 0.4 0.1 0.3
Later than one year
and not later than five
years 0.1 - 0.1
-------------------------------------------------- ---------- --------- --------
0.5 0.1 0.4
-------------------------------------------------- ---------- --------- --------
Minimum
lease Present
payments Interest value
2010 2010 2010
GBPm GBPm GBPm
-------------------------------------------------- ---------- --------- --------
Not later than one year 0.6 0.2 0.4
Later than one year
and not later than five
years 0.6 0.1 0.5
-------------------------------------------------- ---------- --------- --------
1.2 0.3 0.9
Minimum
lease Present
payments Interest value
2009 2009 2009
GBPm GBPm GBPm
-------------------------------------------------- ---------- --------- --------
Not later than one year 0.4 0.1 0.3
Later than one year and not later than five years 0.1 - 0.1
0.5 0.1 0.4
----------
20 Provisions and Deferred Consideration
Contingent consid- Deferred consid-
eration Employee benefits Onerous leases Total provisions eration
GBPm GBPm GBPm GBPm GBPm
At 1 January 2009 1.2 - - 1.2 -
Paid during the year (1.2) - - (1.2) -
At 31 December 2009 - - - - -
On acquisition:
Contingent consideration 7.6 - - 7.6 -
Employee benefits - 3.5 - 3.5 -
Movement during the year: -
Employee benefits - 0.1 - 0.1 -
Orion and MJV - fair value (Note
15) (4.2) - - (4.2) -
LML - foreign exchange variation 0.1 - - 0.1 -
At 31 December 2010 3.5 3.6 - 7.1 -
Movement during the year:
Disposal - (1.1) - (1.1) -
Orion and MJV - deed of
variation (Note 15) (0.5) - - (0.5) 0.5
Redwood - deed of variation
(Note 15) (1.7) - - (1.7) 1.7
Paid during the period (0.4) (0.3) (0.2) (0.9) (1.7)
Applied in settlement for new
shares subscription - - - - (2.5)
Reclassifications - - 0.9 0.9 (0.3)
Charged/(credited) to income
statement (0.9) 0.6 1.3 1.0 3.8
-
At 31 December 2011 - 2.8 2.0 4.8 1.5
31 December 2011:
Current - 1.6 1.1 2.7 1.5
Non-current - 1.2 0.9 2.1 -
31 December 2010:
Current 2.8 2.2 - 5.0 -
Non-current 0.7 1.4 - 2.1 -
Details of the Orion, MJV and Redwood contingent and deferred
consideration movements are set out in Note 15.
Employee benefits comprise long service leave benefits of
GBP2,299,000 (2010: GBP2,767,000) and provision for paid leave of
GBP444,000 (2010: GBP795,000) relating to the employees of HCA.
The onerous lease provision represents the future payments to
which the Group is committed on properties which were vacated prior
to 31 December 2011 or where the intention to move was announced
prior to that date. The longest remaining lease term for any of the
applicable properties expires on 3 October 2014. Due to the
relatively short time frame, and the amounts involved, the future
payments have not been discounted as the impact would not be
significant.
Contingent consideration paid during 2009 related to the
acquisition of Tempaid.
21 Deferred Taxation
The movement on the deferred tax account is shown below:
Accelerated capital Other short term
Intangible fixed assets Tax losses allowances temporary differences Total
GBPm GBPm GBPm GBPm GBPm
At 31 December 2009 0.7 - (0.2) (0.5) -
Arising on acquisitions
as originally reported
(Note 15) 8.5 - - (4.8) 3.7
Arising on acquisitions
restatement (Notes 1
and 15) 9.6 (0.3) - 1.4 10.7
(Credited)/charged to
income statement as
originally reported
(Notes 1 and 8) (0.5) - 0.2 (0.7) (1.0)
(Credited)/charged to
income statement on
restatement (Notes 1
and 8) (0.4) - - - (0.4)
Charged to equity - - - 1.2 1.2
Foreign exchange
adjustment as
originally reported 0.1 - - - 0.1
Foreign exchange
adjustment on
restatement 0.3 - - - 0.3
Other (0.3) - - - (0.3)
At 31 December 2010 (as
restated) 18.0 (0.3) - (3.4) 14.3
Arising on acquisitions -
Arising on disposals (4.3) - - 0.4 (3.9)
(Credited)/charged to
income statement (Note
8) (0.9) (0.6) - 0.1 (1.4)
Foreign exchange
adjustment 0.2 - - - 0.2
At 31 December 2011 13.0 (0.9) - (2.9) 9.2
-----
(1) As reported in Note 1 and Note 15 the Financial Statements
for the year ended 31 December 2010 have been restated to account
for a deferred tax liability recognised on trademarks and other
intangible assets included within the assets acquired in that year
and to reflect a corrected estimate of the deferred tax asset at
the date of acquisition. The previously reported figure for
deferred tax on acquisitions of GBP3.7m has been increased by
GBP10.7m to GBP14.4m, and the foreign exchange impact of restating
the acquired amount to the 31 December 2010 rate of exchange has
been increased from GBP0.1m to GBP0.4m.The deferred tax credit to
the Consolidated Statement of Comprehensive Income for the year
ended 31 December 2010 was originally reported as GBP1.0m and
increased to GBP1.4m as a result of the Social Care goodwill
restatement. The total net deferred tax liability at 31 December
2010 was GBP3.7m and the above adjustments combine to increase that
amount by GBP10.6m to GBP14.3m.
Deferred tax has been calculated on UK and Australian temporary
differences at 25% and 30% respectively. The UK Government has
announced a future decrease in the UK corporation tax rate to 24%
with effect from 1 April 2012, falling by a further 1% per annum to
22% by 1 April 2014. The impact of these proposed rate changes has
not been reflected in the table above as they have not been
substantively enacted at the balance date. The impact of these rate
changes would be to reduce the group's UK deferred tax balance
above by GBP48,000 if the UK temporary difference were all to
reverse at 22%.
The analysis of the net deferred tax balance between deferred
tax assets and deferred tax liabilities is as follows:
At 31 December 2011 Restated at 31 December 2010 At 31 December 2009
GBPm GBPm GBPm
-------------------
Represented by deferred tax asset - - (1.7)
Represented by deferred tax liability 9.2 14.3 1.7
There are unrecognised deferred tax assets in respect of the
following items:
At 31 December 2011 Restated at 31 December 2010
GBPm GBPm
UK trading tax losses 4.3 6.0
UK non-trading tax losses 0.2 0.1
Other UK short term temporary differences 0.8 0.7
Australian capital losses 3.8 -
----------------------------
Total 9.1 6.8
----------------------------
The above assets have not been recognised as in the opinion of
the Directors it is not probable that they will be recovered. None
of the tax losses have an expiry date.
There are no temporary differences in relation to unremitted
earnings of overseas subsidiaries
22 Financial Instruments
The Group's financial instruments comprise bank term loans, zero
coupon loan notes, cash and interest rate swap agreements, trade
and other receivables and payables. For a part of the year there
were drawings under the Mezzanine Facility Agreement. Balances at
the year-end for these financial instruments were as follows:
Monetary assets
2011 2010 2009
GBPm GBPm GBPm
Current financial assets
Trade and other receivables 29.9 37.1 27.3
Cash and cash equivalents 14.2 10.6 4.1
Total current financial assets 44.1 47.7 31.4
Analysed by currency (GBP equivalent):
Pound Sterling 28.9 31.0 31.3
Australian Dollar 15.2 16.7 0.1
44.1 47.7 31.4
Financial liabilities measured at amortised cost
2011 2010 2009
GBPm GBPm GBPm
Current financial liabilities
Trade and other payables 25.5 33.5 18.4
Short term borrowings - 0.1 11.6
Current portion of long term borrowings 0.9 114.4 4.3
Total current financial liabilities 26.4 148.0 34.3
Non-current financial liabilities
Long term borrowings 39.3 0.5 5.5
Total non-current financial liabilities 39.3 0.5 5.5
Analysed by currency (GBP equivalent):
Pound Sterling 18.6 94.5 39.7
Australian Dollar 47.1 54.0 0.1
65.7 148.5 39.8
Derivative financial liability in an eligible Derivative financial liability held at fair value
hedge relationship through profit or loss
2011 2010 2009 2011 2010 2009
GBPm GBPm GBPm GBPm GBPm GBPm
Derivative
financial
liabilities - - 0.3 1.7 1.7 0.5
The Group's bank loans of A$60.0m (GBP39.5m) (2010: A$65.7m
(GBP43.0m) and GBP73.2m) bear interest based upon Reuters quoted
market bid rates at the time of drawdown for the applicable
drawdown period, plus a margin (2010: LIBOR plus a margin).
The Zero Coupon Loan Notes of nominal GBP10.2m (2010: GBPnil),
which fall due in September 2021, bear no interest, but the loan
note agreement provides for the issue of further Zero Coupon Loan
Notes of up to GBP2.5m in nominal value if the Group achieves
certain EBITDA and enterprise value targets. (See below for
information on the fair value attributed to the Zero Coupon Loan
Notes and the embedded derivative.)
It is, and has been throughout the period under review, the
Group's policy that no trading in financial instruments shall be
undertaken.
The Group's activities expose it to a variety of financial
risks: market risk (including currency risk, fair value interest
rate risk and cash flow interest risk), credit risk and liquidity
risk. The Board reviews and agrees policies for managing each of
these risks and they are summarised below.
(a) Market risk
(i) Foreign exchange risk
The Group had a term loan of A$60m outstanding as at 31 December
2011 (2010: A$62.3m) which exposes the Group to currency risk.
Since the Refinancing the loan has been held within the sub-group
in Australia and so forms part of the A$ net assets of that
sub-group. The impact of movements of the exchange rate of the A$
against Sterling on net assets pass through the translation reserve
in the Unaudited Consolidated Statement of Comprehensive
Income.
There is an A$ denominated inter-company account between
Healthcare Locums plc and the Australian sub-group which gives rise
to exchange gains and losses booked in finance costs in the
Unaudited Consolidated Statement of Comprehensive Income. As at 31
December 2011 the amount of A$18m was recorded as a receivable
balance in Healthcare Locums plc. At 31 December 2011 the rate of
exchange was GBP1 = A$1.5195 (2010: GBP1 = A$1.5274).
As at 31 December 2011 60% (2010: 66%) of the total assets of
the Group were held in subsidiary companies outside the UK and
denominated in currencies other than Sterling; principally in A$.
Group policy is not to hedge the net investments in foreign
operations using derivative financial instruments as it does not
consider that the reduction in foreign currency exposure warrants
the cash flow risk created from such hedging techniques.
If Sterling had been 10% weaker / stronger against the A$ during
the year ended 31 December 2011, with all other variables held
constant, the post tax loss for the year would have been GBP0.9m
lower/higher.
If Sterling had been 10% weaker / stronger against the A$ during
the year ended 31 December 2011, with all other variables held
constant, the total comprehensive loss for the year would have been
higher/lower by GBP1.1m.
(ii) Cash flow and fair value interest rate risk
Market risk also arises from the group's use of interest bearing
financial instruments, which expose the Group to interest rate
risk. The Group finances its operations through a mix of equity,
bank debt and loan notes. Interest rate risk arising due to the
Group's borrowings in A$ at floating rates of interest is
mitigated, by agreement with the lenders, by interest rate
instruments that generate a desired risk profile to manage the
Group's exposure to interest rate fluctuations. At 31 December 2011
67% of the A$ floating rate interest exposure had been swapped to a
fixed rate of 10.67% (2010: GBP33.2m fixed at 3.305% and A$44.9m
fixed at 6.14%).
Hedge accounting has not been applied to the swap instruments
and therefore they are measured at fair value through the Unaudited
Consolidated Statement of Comprehensive Income and a credit of
GBP0.5m (2010: charge of GBP1.7m) has been made to the Unaudited
Consolidated Statement of Comprehensive Income to reflect the
movement in the fair value of these instruments. At 31 December
2011 no instruments were recorded in equity (2010: none).
As of the close of business at 31 December 2011 interest rate
exposure was limited to the unhedged 33% of the A$60m of borrowings
i.e. on A$20m (GBP13.2m), offset by the cash balances of GBP14.2 m
which earn floating rate interest income. The impact of a 1% change
in interest rates is, therefore, not significant.
(b) Credit risk
Credit risk arises principally from the Group's trade
receivables and is the risk that the customer fails to discharge
its obligations in respect of the instrument. The Group's exposure
to credit risk is considered to be insignificant due to the heavy
weighting of its customer base in the UK towards NHS Trusts, Local
Authorities and other Government institutions and in Australia to
public hospitals and health providers. Private sector customers are
subject to credit checking procedures prior to commencing trade
with them. The quality, and hence the low risk, of the customer
base is also shown by the small amounts of overdue debt. None of
the overdue balances of the Group are considered impaired.
The Group transacts with counterparties which it considers to be
creditworthy. During the year ended 31 December 2011 surplus cash
was deposited with Lloyds Bank plc. After the year end, as noted in
liquidity risk below, most of the surplus cash was moved to a
Liquidity Fund managed by Scottish Widows which reduced the credit
risk.
Current Up to 1 month overdue 1 to 2 months overdue >2 months overdue
Trade debtors 31 December 2011 GBP19.4m GBP3.5m GBP1.9m GBP0.3m
% of trade debt per ageing category - 31
December 2011 77.5% 13.9% 7.6% 1.0%
Trade debtors 31 December 2010 GBP21.4m GBP4.2m GBP1.7m GBP1.3m
% of trade debt per ageing category - 31
December 2010 74.6% 14.7% 6.1% 4.6%
Trade debtors 31 December 2009 GBP13.3m GBP3.2m GBP0.7m GBP0.4m
% of trade debt per ageing category - 31
December 2009 76.0% 18.0% 4.0% 2.0%
(c) Liquidity risk
Liquidity risk arises from the Group's management of working
capital and the finance charges and principal repayments on its
debt instruments. The Board receives regular cash flow
projections.
Liquidity risk arises principally from the volume of revenue
forecast and the potential for adverse outcomes in litigation.
The factors considered by the Board in assessing going concern
are set out in Note 3c and the Financial Review.
In December 2011 the Board approved a Treasury Policy setting
out, inter alia, how the short term cash resources should be
managed. Until then short term cash resources were deposited with
Lloyds Bank plc. Shortly after the year end, in accordance with the
Treasury Policy, the Group opened a Liquidity Fund account managed
by Scottish Widows, a subsidiary of Lloyds Banking Group plc.
Liquidity Funds provide instant access to the deposited funds. The
Liquidity Fund is rated AAA by S&P, whose rating criteria
stipulates that a minimum of 50% of the portfolio should be
composed of A-1+ (or equivalent) instruments in order for the fund
to maintain a AAA rating. The methodology S&P applies to
calculate the A-1+ percentage counts A-1 (or equivalent) rated
instruments maturing in seven days or less towards the A-1+
percentage minimums, as historical default rates on A-1 paper
maturing within seven days are similar to the default rates of A-1+
issuers. By using such Funds counterparty risk for the Group is
reduced as the Fund invests in a wide range of counterparties.
Gross, undiscounted liabilities are due as follows (2010 figures
refer to the contractual payment dates for bank loans and not the
classification of those loans as current in the Unaudited
Consolidated Statement of Financial Position as reported in Note
19):
Due in
1 to
On demand Due within 1 year 2 years Due in 2 to 5 years Over 5 years
GBP'm GBP'm GBP'm GBP'm GBP'm
----------------- --------- -------------------
2011
Non derivative financial instruments -
outflows
Long and short term borrowings - 4.8 7.3 37.3 10.2
Finance leases - 0.4 0.1 - -
Trade and other payables - 4.3 - - -
Deferred consideration - 1.5 - - -
----------------- --------- -------------------
- 11.0 7.4 37.3 10.2
Derivative financial instruments - net
outflows - 0.9 0.8 - -
Total - 11.9 8.2 37.3 10.2
--------- -------------------
2010
Non derivative financial instruments -
outflows
Long and short term borrowings(1) 0.1 16.6 19.5 120.5
Finance leases - 0.4 0.5 -
Trade and other payables - 33.5 - -
Contingent consideration - 2.7 0.4 0.3
----------------- --------- -------------------
0.1 53.2 20.4 120.8
Derivative financial instruments - net
outflows - 1.2 1.2 2.3
Total 0.1 54.4 21.6 123.1
--------- -------------------
2009
Non derivative financial instruments -
outflows
Long and short term borrowings 11.6 4.4 4.8 0.9
Finance leases - 0.3 0.1 -
Trade and other payables - 18.4 - -
----------------- --------- -------------------
11.6 23.1 4.9 0.9
Derivative financial instruments - net
outflows - 0.7 0.2 -
Total 11.6 23.8 5.1 0.9
--------- -------------------
The above tables summarise undiscounted cash flows based on the
financial liabilities of the Group outstanding at the year-end and
assuming no changes in interest rates from the year-end rates.
Fair value estimation
In the opinion of the Board the carrying value of the assets and
liabilities of the Group approximate their fair values. As noted
above, the only other financial instruments that are measured at
fair value through the Consolidated Statement of Comprehensive
Income are interest rate swaps. There are no financial assets or
liabilities held for trading purposes or any investments classified
as available-for-sale.
GBP10,212,500 of Zero Coupon Loan Notes were issued to Ares Lux
as part of the Refinancing as reported in Note 23e. They are
repayable in normal circumstances in September 2021, or earlier in
the event of another refinancing or a change of control of the
Group. The Directors have discounted the Zero Coupon Loan Notes at
15%, a rate between the cost of the Group's senior debt and the
cost of equity after the Refinancing to give a fair value at the
time of issue of GBP2,505,115. The imputed interest is charged to
finance expenses from the date of issue until the repayment date.
The charge in the year ended 31 December 2011 was GBP113,245 (2010:
GBPnil). The Loan Notes contain an embedded derivative as
additional Loan Notes, up to a maximum value of GBP2,500,000, will
be issued if the Group achieves certain EBITDA targets in the years
ended 31 December 2013 and/or 2014, or if the Enterprise Value at
31 December 2013 and/or 31 December 2014 and/or 31 December 2015
exceeds certain target amounts. No value has been attributed by the
Directors to the embedded derivative at the time of issue or at the
year end as the Directors believe these targets will not be
met.
The fair value of interest rate swaps is based on information
derived from respective bankers' quotes and as such they fall into
Level 2 of the fair value hierarchy. The fair value of the Zero
Coupon Loan Notes is based on management judgements and as such
falls into Level 3 of the fair value hierarchy.
Capital risk management
The Group considers its capital to comprise its ordinary share
capital, share premium, and accumulated retained earnings. In
managing its capital the Group's long-term objective is to ensure
its continued ability to provide a growing return for its equity
shareholders through a combination of capital growth and
distributions.
As reported in the Consolidated Financial Statements for the
year ended 31 December 2010, the Board determined that it was a
priority to reduce the gearing of the Group. As a result of the
restatement of the 2010 Financial Statements net equity became
negative at 31 December 2010. As at 31 December 2011 the gearing
was 43.4% Two transactions, in particular, during the year
contributed significantly to the reduction. Firstly, the sale of
the Homecare Division of HCA, as announced on 18 July. Net proceeds
of sale of A$30.5m (GBP20.3m) were used to reduce debt. Secondly,
the Refinancing approved by shareholders on 12 September 2011 as
set out in detail in Note 23.
The facilities provided by the Group's bankers include a number
of financial covenants on interest cover and leverage (debt to
EBITDA). The first testing of the covenants will be at 30 September
2012.
23 Refinancing
On 19 August 2011 the Board announced a substantial Refinancing
of the Company, comprising a GBP60,000,000 Placing of Ordinary
Shares of 10p each at par, an Open Offer of up to GBP4,250,579 of
Ordinary Shares of 10p each at par, a Debt for Equity Conversion
and a Debt Repayment and Restructuring (together the
"Refinancing").
The Refinancing was conditional on the approval of the
Refinancing Resolutions by Shareholders in General Meeting, and the
Refinancing Resolutions were all passed at the General Meeting held
on 12 September 2011.
On 13 September 2011 the shares of the Company were re-listed on
the AIM, following the suspension of trading on 25 January 2011,
and 734,450,971 new shares were admitted to trading on the AIM.
There were a number of steps within the Refinancing and these
are described in more detail below.
(a) New shares issued
The following new shares were issued as part of the
Refinancing:
Number
GBP60,000,000 Placing of New Ordinary Shares of 10p each 600,000,000
Debt for Equity swap by way of issue of Ordinary Shares at 18p to Ares Capital Europe
(Luxembourg)
S.a.r.l. 125,000,000
Open Offer of up to GBP4,250,579 New Ordinary Shares of 10p each 9,450,971
Total number of New Ordinary Shares issued 734,450,971
(b) Utilisation of the proceeds of the Placing
The Placing raised GBP60,000,000 which was utilised as
follows:
GBP
Repayment of existing bank debt 35,000,000
Settlement of debt owed to Craig Tibbles (i) 2,500,000
Commission to Toscafund Asset Management LLP(ii) 1,137,500
Commission to ACE Limited. (iii) 200,000
Working capital facility fee to ACE Limited. (iv) 250,000
Settlement of working capital facility capital and accrued interest due to Ares (iv) 3,017,540
Nomad fees to Fairfax 710,920
Cash received - available to pay costs and professional fees 17,184,040
Total 60,000,000
(i) The Company and Craig Tibbles agreed, subject to completion of the Refinancing, to restructure
the two deferred consideration payments of GBP2,000,000 and GBP3,000,000 payable by the Company
to Craig Tibbles under the terms of the acquisitions of Orion Locums Limited and MJV Locums
Limited in 2010. One element of the agreement was that GBP2,500,000 be released by way of
subscription by Craig Tibbles for 25,000,000 New Ordinary Shares under the Placing. He has
agreed not to sell any of the New Ordinary Shares purchased for a period of 12 months after
the date of the Refinancing.
(ii) The Company agreed to pay Toscafund Asset Management LLP a commission of GBP1,137,500
for participating in the Placing, in which Toscafund Asset Management LLP agreed to subscribe
for 336,375,000 New Ordinary Shares. The commission was considered to be within the range
of normal market rates for a transaction of this type. The cost is included in the GBP2.3m
share issue costs in the Consolidated Statement of Comprehensive Income.
.
(iii) The Company agreed to pay ACE Limited, a member of the Ares concert party, a commission
of GBP200,000 for participating in the Placing, in which ACE Limited agreed to subscribe for
131,625,000 New Ordinary Shares. The commission was considered to be within the range of normal
market rates for a transaction of this type. The cost is included in the GBP2.3m share issue
costs in the Consolidated Statement of Comprehensive Income.
(iv) The Company negotiated an Interim Working Capital Facility of up to GBP5,000,000 with
ACE Limited on 19 August 2011. The arrangement fee of GBP250,000 for the facility, which was
made available until the earlier of the Refinancing or 17 October 2011, was agreed to be repaid
by way of set-off against subscription monies payable by ACE Limited in the Placing. In addition
the Company agreed to repay ACE Limited all capital and accrued interest drawn, amounting
to GBP3,017,540 under the Interim Working Capital Facility by way of set-off against subscription
monies payable by ACE Limited in the Placing. The arrangement fee was expensed in finance
costs (Note 7).
(c) Debt for Equity Swap with Ares Capital Europe (Luxembourg)
S.a.r.l. ("Ares Lux")
Ares Lux provided finance to the Company through a Mezzanine
Facility Agreement, as part of the financing raised to acquire HCA
in December 2010, and agreed, subject to the Admission of New
Ordinary Shares to the AIM and subject to the terms of the
Restructuring Agreement, to convert up to GBP22,400,000 of capital
and accrued interest into 125,000,000 New Ordinary Shares. This was
the same in economic terms as Ares Lux subscribing GBP12,500,000
for New Ordinary Shares at par and writing off up to GBP9,900,000
of capital and accrued interest. At the date of completion of the
Refinancing the actual amount due to Ares Lux, excluding the
GBP10,212,500 referred to in (e) below, was GBP22,396,586. As noted
below the fair value of the New Ordinary Shares issued to Ares Lux
was 10p per share, or GBP12,500,000 in total. The difference
between the fair value of the shares issued and the amount of
principal and accrued interest outstanding under the Mezzanine
Facility Agreement, being GBP9,896,586, was recorded as a gain in
Finance Income (Note 7).
(d) Utilisation of the proceeds of the Open Offer
The Open Offer raised GBP945,097 which was utilised as
follows:
GBP
Registrar's fees 18,551
Cash received 926,546
Total 945,097
(e) Debt for Zero Coupon Loan Note ("Note" or "Notes") Swap with Ares Lux
Ares Lux agreed, subject to the same conditions as in (c) above,
to convert GBP10,212,500 of the debt owed to it by the Company
under the Mezzanine Facility Agreement into Notes, for a principal
amount of GBP10,212,500. If the Group achieves certain EBITDA or
Enterprise Value targets or if certain conditions are met, the
Company will be obliged to issue additional Notes to the holders.
The maximum number of new Notes to be issued is GBP2,500,000. The
Notes do not accrue interest and they fall due for repayment on 30
September 2021 except in certain circumstances relating to a change
in control of the Group or a further refinancing in which case the
redemption date may be brought forward. As disclosed in Note 24 the
fair value of the Notes at the date of issue was GBP2,505,115 and
the gain of GBP7,707,385 is reported in finance income (Note 7). A
finance expense is being recognised in the Unaudited Consolidated
Statement of Comprehensive Income post the date of issue which will
increase the liability to the full value of GBP10,212,500 by the 30
September 2021. For the period from issue to 31 December 2011 the
amount of the charge was GBP113,245 (2010: GBPnil).
(f) Waiver of existing bank debt
The banks agreed to waive debt existing immediately prior to the
Refinancing amounting to capital of GBP5,941,826 and accrued
interest of GBP564,605 and these amounts were credited to Finance
Income (Note 7).
(g) Write off of capitalised bank fees
Fees incurred in negotiating bank facilities are recorded in the
Unaudited Consolidated Statement of Financial Position as a
reduction of the total borrowings and written off to the Unaudited
Consolidated Statement of Comprehensive Income over the term of the
facility. As part of the Refinancing, drawings under the existing
facilities were either extinguished or modified. Where facilities
were extinguished the balance of unamortised fees were written off
to Finance Expense. Where modified the appropriate proportion of
unamortised fees were carried forward in the Unaudited Consolidated
Statement of Financial Position to be written off over the term of
the modified facilities. The amount of GBP4,380,402 was written off
to Finance Expense (Note 7).
(h) Costs
Advisers' fees totalling GBP5,556,819 were incurred in
negotiating the Refinancing. Of these costs GBP2,472,116 was paid
to the advisers to the Company and the Company also paid
GBP3,084,703 of costs incurred by the banks. All of these costs
have been charged to finance expenses (Note 7).
(i) Share issue costs
Costs of GBP2,315,194 were incurred which were directly related
to the issue of shares in the Refinancing. As no share premium was
created from the issue of those shares the cost has been charged to
the Profit and Loss Reserve.
(j) Modified loans
Modified loans of A$60,000,000 (GBP38.9m) were drawn by HCA
under the Syndicated Facility Agreement. The loans are secured by a
charge on the assets of the Group. Details of the terms of the new
loans are set out in Note 22. Costs directly attributable to the
raising of the new loans, amounting to GBP672,134, were debited to
unamortised debt issue costs within borrowings (Note 19).
(k) Warrants
Under the terms of the Mezzanine Facility granted by Ares Lux in
2010 the Company granted Ares Lux warrants over 2,493,453 shares in
the Company at an exercise price of 10p per share. The warrants
lapsed as part of the Refinancing and GBP2.6m was charged to
Finance Expense (Note 7).
Based on the price paid for new shares in the Placing and the
Open Offer, and the prices in the open market immediately after the
shares were relisted, the Directors consider the fair value of the
shares issued in exchange for debt to be 10p each.
24 Share Capital
Authorised
31 December 31 December
2011 2010 2009 2011 2010 2009
Number '000 Number Number GBPm GBPm GBPm
'000 '000
-------- --------------------- ----- -----
Equity share capital
Ordinary shares of 10p each 847,799 200,000 200,000 84.8 20.0 20.0
-------- --------------------- -----
Allotted, called up and
fully paid
31 December 31 December
2011 2010 2009 2011 2010 2009
Number '000 Number Number '000 GBPm GBPm GBPm
'000
-------- ------------
Equity share capital
Ordinary shares of 10p each 847,799 113,338 104,667 84.8 11.3 10.5
--------
The movements in the issued share capital are set out below:
Ordinary shares of 10p
Number '000 GBPm
-------- ---------------------
As at 1 January 2009 104,272 10.4
Shares issued following exercise of share options granted to
employees at 30 September 2009 395 0.1
As at 31 December 2009 104,667 10.5
Shares issued following exercise of share options granted to
employees and other parties on:
27 January 2010 500 -
29 April 2010 250 -
20 September 2010 4 -
3 November 2010 584 0.1
New ordinary shares issued on 16 July 2010 7,333 0.7
---------------------
As at 31 December 2010 113,338 11.3
Shares issued in year (i) 10 -
New ordinary shares issued on 13 September 2011 (Note 23) 734,451 73.5
---------------------
As at 31 December 2011 847,799 84.8
--------
(i) During 2011 the Registrars issued a share certificate for an incorrect number of shares,
and the purchaser subsequently sold the shares. The Registrars paid the Company 20p per share,
after the year end, in settlement.
The shares issued in January 2010 following exercise of share
options granted to employees comprised 500,000 options that were
issued at the exercise price of 106p per share. The shares issued
in April 2010 following exercise of share options granted to
employees comprised 250,000 options that were issued at the
exercise price of 112.5p per share. At the same exercise price,
4,000 shares were issued in September 2010.
In November 2010, 583,836 shares were issued pursuant to an
option deed dated 4 November 2005 at the exercise price of 55.0p
per share.
On 16 July 2010, the Company issued 7,333,334 new 10p ordinary
shares at 150p per share raising a total of GBP11.0m. Transaction
costs of GBP469,000 were incurred in relation to this issue which
were charged to the Share Premium Account.
All the new shares issued during the year and the prior year
have the same rights, preferences and restrictions as those
relating to the ordinary shares already in issue at the start of
the year.
25 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 in connection with claims or
exposures which the directors consider represent 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 has since that date launched legal proceedings against
the Company for unfair dismissal, victimisation and sex
discrimination, claiming damages of GBP12m. The Company has taken
legal advice and will vigorously defend itself against these
charges, initially at an Employment Tribunal in April 2012. Whilst
the outcome is uncertain, on the basis of legal advice received,
the Board believes the claims are unfounded and therefore that
there is no liability or probable cash outflow for the Group and
Company, other than legal costs in defending the claim.
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 alleges 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 alleges that the Plaintiffs have suffered
substantial damages. The Complaint is available for inspection from
the court.
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 is taking legal advice on the merits of the Complaint
and the proper jurisdiction for the determination of any such
claim. At this early stage the Board has been unable to form a view
as to whether any liability exists, to quantify the claim, whether
any economic outflow is probable and if so, its timing.
No provision has been made for future legal costs which are
written off as incurred.
Other contingent liabilities
In addition the Company and certain of its UK subsidiaries have
the following contingent liabilities in respect of its day-to-day
operations.
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 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 the 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 statement on Principal Risks and Uncertainties.
26 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, John Cariss, owning the majority of the share
capital of these companies.
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 31 December 2011. During 2010 the Group
purchased services from Nationwide Accreditation Bureau Company
Limited of GBP199,000 and from Redwood Group Limited of GBP200,000.
The Group invoiced services provided to Netengines Holdings Limited
of GBP20,000.
Nationwide Accreditation Bureau Company Limited and Netengines
Holdings Limited have both made commercial claims against the Group
which have been rejected after an assessment by the Directors of
the likelihood of the claims being successful. They are disclosed
here as they are related parties.
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 Limited, 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 detailed in Note
15.
On 20 August 2010 the Company received an interest free
GBP400,000 loan from Cardale Investments LLP. The loan was fully
repaid on 6 September 2010.
During the year ended 31 December 2010 wages and salaries were
paid to relatives of Directors then in office of GBP33,101 to Ian
Jarvis, the husband of Ms. Diane Jarvis; GBP525 to Daniel Cariss,
the son of Ms. Kate Bleasdale; and GBP79 to Danial Dedat, the son
of Mr. Mo Dedat.
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 the year 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 Amersham Business
Management Limited
Alan Walker Alfa International Limited
Bill Jessup Corporate Navigator Limited
Alasdair Liddell Alasdair Liddell Limited
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 and the Company paid fees of
GBP1,137,500 to Toscafund Asset Management LLP as disclosed in Note
23(b)(ii). The Toscafund Concert Party subscribed for 336,375,000
New Ordinary Shares in the Placing, a part of the Refinancing,
paying GBP33,637,500. The Ares concert party became a related party
when the refinancing was completed. Concurrently to the completion
of the Refinancing the Company paid fees of GBP200,000 to ACE
Limited as disclosed in Note 23(b)(iii), swapped debt for equity as
disclosed in Note 23c and swapped debt for the Zero Coupon Loan
Note as disclosed in Note 23(e). The Zero Coupon Loan Note was
still held by Ares Lux at 31 December at which time the fair value
in the Unaudited Consolidated Statement of Financial Position was
GBP2,618,360.
27 Post Balance Sheet Event
Information relating to a claim made in New York after the year
end by Permian Master Fund LP, et al, is disclosed in Note 25.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BKDDNKBKBFQK
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