Chairman's statement
In the last 12 months we reshaped both our business and our own leadership team.
We are now well placed to take full advantage of the current market and the
potential for future growth.
Group turnover for the year to 31 March 2003 was broadly flat at £65.0 million
compared with £64.6 million in 2002. Our results reflect a full year's
contribution from Baines Gwinner Holdings Limited, which we acquired in November
2001. They also include the contribution of Summit Leadership Solutions Corp.
based in the USA, which we acquired in August 2002 to complement The Change
Partnership Limited, our UK based executive development and coaching business.
These acquisitions had the positive impact of underpinning revenue in a
declining market but, together with other senior hires, contributed to the
increasing cost base. As a consequence, earnings before interest, tax,
depreciation, goodwill charges and exceptional costs were £9.7 million (2002:
£13.2 million).
Our strategy at the start of last year had been to grow along three dimensions
at the same time - geographies, industry channels, and services. But, in the
context of the global market downturn, we began restructuring our business to
reflect a realistic expectation of revenues and moderated our strategic
ambitions.
As part of this restructuring, we recruited Stephen Lawrence as our new Chief
Executive in November 2002. He has experience of running international
professional services companies in the public arena, as well as a strategic
management consultancy background.
The restructuring included the disposal of our Munich operations and of our
Training & Careers businesses, resulting in a 25% reduction in headcount. The
cost of this restructuring was significant in terms of the exceptional costs
incurred. As well as re-evaluating the carrying value of investments and
subsequently writing down goodwill by £13.4 million (2002:nil), we have also
provided £5.1 million (2002: £800,000) for at least one year's future lease
costs of unoccupied property. The headcount reduction resulted in over 90 people
leaving the Group at a total cost of £6.7 million (2002: £2.4 million).
The Board believes that securing a healthy cash position is a priority in these
uncertain times and, as a consequence, is recommending a final dividend of 2.5p
(2002: 8.0p) making a total dividend for the year of 7.0p (2002:13.6p). This
dividend is twice covered by adjusted earnings, an appropriate level of cover in
current market conditions.
It is now almost three years since the Group acquired GKR Group Limited and
Pendleton James, Associates Inc. As a result of those acquisitions we welcomed
both Philip Marsden and Andy Hunter to the Group Board as executive directors to
spearhead the integration of the acquired entities. Now that integration is
complete, both Philip and Andy have asked to step down from the Board to
concentrate fully on their clients. I can also announce that our Group Finance
Director, Matthew Brassington, having been with the Group for nearly six years,
has decided to leave. He will be staying on whilst a suitable replacement is
identified and to help with a handover of responsibilities. All three step down
at the Annual General Meeting to be held on 21 July 2003. On behalf of the
Board, and the entire Group, I offer thanks to each of them for the considerable
contribution they have made at the Board over the last few years and I offer
Matthew my best wishes for the future.
Tough times demand strong leadership. Our clients have been seeking ways to
recruit and develop the best available executive and non-executive talent to
help keep them at the forefront of their own markets. In addition, the need for
Board Level leadership has been given fresh impetus by the rising pressures of
corporate governance.
Given the global economic uncertainty, we are not expecting revenues to improve
over the year ahead and, with that in mind, we have taken the necessary steps to
reshape the organisation to secure better margins and to generate cash at
current trading levels. The current year has started in line with budget and
therefore we remain cautiously optimistic for the year ahead.
Peter Foy, Chairman
Chief Executive's review
Overview
Since my appointment in November 2002, we have thoroughly reviewed the Group's
operations and strategic direction. Reported revenues were flat, down 10% on a
like for like basis, a significant achievement compared to our main competitors
who have seen their revenues decline by 20% to 40% in the past year.
Our Executive Evaluation and Executive Development & Coaching businesses have
continued to grow as clients seek to evaluate, develop and coach their executive
teams in these challenging conditions. However the Executive Recruitment
business, which represents 83% of Group revenues, although continuing to
outperform the sector, has experienced a decline in volumes in certain industry
segments, principally financial services.
As a consequence of this change in revenue mix and the fact that at the start of
the year the cost base of our organisation had been sized for significant
growth, my immediate priorities have been to align the Group's cost base with
expected revenues, and to streamline the operations to be more competitive. As a
result, we have taken some tough decisions to position the business to make the
most of current market conditions.
The market for leadership talent at the highest levels of organisations has
proven more resilient than the general recruitment market, and we believe the
Whitehead Mann Group has robust businesses with good growth prospects. The
strategy of offering clients the combination of Executive Recruitment,
Evaluation, and Development & Coaching has given the Group a differentiated
market position, which has proven successful both within the UK and overseas.
During the year, the Group served over half the FTSE 100 as clients in the UK,
and we continued to increase our share of top-level assignments for public
sector, CAC 40, DAX 30 and Fortune 500 organisations. Although the current
trading year is likely to remain flat, as world economies start to recover, our
revenues should return to growth.
Operational financial performance
Group turnover for the year to 31 March 2003 showed a marginal increase at £65.0
million compared with £64.6 million in 2002. Earnings before interest, tax,
depreciation, goodwill charges and exceptional costs were lower at £9.7 million
(2002: £13.2 million).
The exceptional costs of £25.1 million (2002: £3.2 million) relate to resizing
and reshaping the business to better suit market conditions and our business
strategy and are discussed in more detail below. Earnings per share (before
goodwill charges and exceptional costs) were down on last year to 14.69p (2002:
34.34p).
We generated £7.1 million of cash from operating activities (2002: £2.2
million). After paying interest, tax and capital expenditure we remained
strongly cash generative: £3.4 million (2002: outflow £2.9 million).
Of the £25.1 million exceptional charges £13.4 million relates to the write-down
of goodwill and has no consequences from a cash perspective. Of the £6.7m
relating to redundancy and related people costs, £ 4.5 million had been settled
prior to the year end with the balance due to be paid over the next two years.
After paying dividends totalling £3.2 million (2002: £2.9 million) and a net
cash outflow in respect of deferred consideration and acquisitions and disposals
of £1.2 million (2002: £1.8 million) we absorbed, before financing, £1.0 million
during the year (2002: £7.6 million absorbed). We therefore finished 2003 with
net debt of £ 10.2 million (2002: £9.2 million).
Business and market strategy
Together, Executive Recruitment, Executive Evaluation, and Executive Development
& Coaching offer a powerful combination to help our clients secure the
leadership to transform their business performance. In providing these services,
we develop ongoing partnerships with our clients and generate more predictable
revenue streams over longer periods.
In order to manage these core relationships effectively, our consultants operate
as international teams under the leadership of global relationship managers.
Together they are dedicated to client care and are able to provide a broad range
of leadership services. During the year, for example, we won a new contract to
help shape the leadership team throughout the global operations of one of the
largest telecom service providers in the world - combining recruitment,
evaluation and coaching services.
As a result we have strengthened our market position by sustaining our shift
away from the sector's traditional reliance on transaction-oriented
relationships with clients. This trend towards advisory-oriented relationships
will continue, especially as we develop further our range of services. Many of
our clients are seeking a total solution to help them build winning teams,
through an ongoing service based on annual contracts and support.
Executive Recruitment
The flagship Whitehead Mann executive search business contributed 83% of Group
revenues, and continued to outperform competitors. Without doubt, the market for
recruitment in general has experienced two very difficult years in all developed
economies. But through our dominant position within the UK market, working at
the highest levels of organisations and searching internationally for our
multi-national clients, we believe that we have fared better than competitors in
Europe and the USA.
During the year some business units, such as financial services, experienced a
decline in activity in line with the overall financial services sector. But
across our business as a whole, activity has remained reasonably constant, and
our success ratio of completed search assignments continues to be in the top
quartile for the industry.
We maintained a high level of activity on Board appointments for both executive
and non-executive directors and the level of demand for top executives also
remained higher than in the general recruitment market. For both executive and
non-executive talent, the quality of our search service is underpinned by the
breadth and depth of our market intelligence and the rigour of our research
processes.
Across the Group, the average starting salary of executives placed by Whitehead
Mann during 2003 was £154,000 (2002: £145,000). This average has grown steadily
over the last five years, reflecting the calibre of the people we recruit to
fill senior positions for our clients.
This year alone, our consultants worked for over 600 organisations, handling
over 1,000 assignments, interviewing some 8,500 people and evaluating over
90,000 resumes. I can only pay tribute to the teams who have achieved this
impressive level of performance during a period of both market downturn and
internal reorganisation for the business.
The quality of our service is indicated by the high level of repeat business -
89% of our key clients from three years ago are still working with us. We have
an eight-year relationship, for example, with one major international bank.
During that time we have carried out over 135 searches for that client, and now
also provide executive assessment and coaching to them. For one of the world's
oil majors, we provide ongoing executive recruitment, evaluation and development
services for the organisation's top team of some 270 executives.
Executive Evaluation and
Executive Development & Coaching
As consultants advising across the leadership agenda, we provide a wide range of
services through our two other business operations: Executive Evaluation and
Executive Development & Coaching.
Our executive evaluation activity, which accounts for 4.0% of revenue (2002:
6.0%) has historically been focused on the mergers and acquisitions market and
has been weakened by the economic climate. Consequently this activity was
restructured during the year to address the wider market of executive evaluation
in major organisations. Although this refocusing is now beginning to bear fruit,
the impact over the year has been a decline in revenue.
Our development and coaching activity grew by 32% and contributed over 10% of
group revenues. As a proportion of our total revenue, that percentage is growing
and we expect it to keep on growing as we develop longer-term relationships. The
financial impact of this is to provide the Group with greater revenue certainty
as most development and coaching assignments are sold on rolling annual
contracts. Our analysis of the total market for Executive Evaluation and
Executive Development & Coaching suggests it is approximately three times the
size of the market for Executive Recruitment, with a value of over $20 billion
and growing in North America, Europe and Asia Pacific.
In order to capitalise on this market opportunity we acquired Summit Leadership
Solutions Corp. to strengthen our team in the USA, where it has been estimated
that around 90% of Fortune 500 companies use coaching. Summit has an impressive
track record and client base in this market. Under The Change Partnership brand,
we are successfully building on our strength in the UK to roll out coaching
services in European markets, where there is significant untapped potential.
The pressures on Boards to perform, in addition to growing regulatory and
corporate governance requirements, mean that clients are constantly seeking to
evaluate and develop their executive talent to maximise performance. For
example, one of our teams this year assisted the American CEO of a major
multi-national corporation to restructure its European divisions. We evaluated
whether the people were right for the new roles and then coached the
corporation's Presidents in five countries, in four languages, over a six-month
period to assist the move to the new structure.
Newly appointed executives and Board members benefit from coaching services to
smooth the transition into their new roles and ensure a quicker and more
effective fit with the organisation. Such services are also essential to support
mergers and acquisitions. For example, we assisted a major financial services
client over a three-year period to evaluate over 400 top executives in an
acquired business, across a range of specialist functions, to support the
integration process. We also recruited over 30 new senior executives for the
same client.
Business reshaping
We have now restructured our business to deliver our business strategy, and our
brand has value because of the quality of service our people provide. We have
also reviewed our remuneration methods and, going forward, rewards will be more
aligned to business and team performance as well as individual achievement.
In reshaping the business, our goal has been to strengthen our position as a
differentiated player, to reduce costs and to become more efficient. We aim to
be faster, nimbler and smarter than our competitors, working through global
teams on major client accounts. The new organisational shape reflects global
centres of excellence for both industry channels and functional expertise, with
operational accountability at local level.
Last year, we positioned our businesses for more rapid growth than became
apparent during the course of the year. As a consequence, we took steps to
restore the balance between revenues and costs. In total, we reduced headcount
by over 25% from 407 to 295, of whom 235 are client-facing. We also decided to
focus around four geographic hubs, London, New York, Paris and Hong Kong,
disposing of our operations in Munich and closing other operations where
appropriate to streamline our services.
To support our more market-facing approach, we have created seven Industry
Channel Practices and ten Functional Centres of Excellence. These make best use
of our extensive knowledge and market intelligence on talented people who have
the expertise needed by major organisations.
The seven Industry Channel Practices are responsible for managing client
relationships and providing knowledge and insights into industry sectors. These
are:
• Financial Services
• Industry
• Consumer/Retail
• Professional Services
• Technology, Media, Telecommunications
• Healthcare
• Public Sector
The Functional Centres of Excellence are responsible for developing functional
knowledge and marketing this effectively through the industry channels. These
are:
• Board Services
• Finance/Treasury
• Financial Services' specialisms
• Technology
• Human Resources
• Sales and Marketing
• Procurement/Operations/Logistics
• Diversity
• Communications
• Legal/Compliance
Business growth
Even within the prevailing economic climate, we continue to see opportunities
for growth along the three dimensions of geographies, industry channels and
services. But, going forward, we will implement our plans for growth in a way
that is more consistent with the prevailing economic climate. We have no current
plans to make further acquisitions but will continue to assess the potential to
grow through acquisition should attractive opportunities arise to support our
strategy.
First, in terms of geographies, we now operate cost-effectively out of four
geographic hubs from which we can service some 80% of the world market. There is
a growing requirement within our client base for such high-level cross-border
support, and an increasing number of our relationships involve building and
shaping teams for existing clients to operate in other countries.
Second, we have reshaped our business to focus more clearly on the industry
channels where our track record is strongest. This review process also has
identified sectors with growth potential where we are under-represented.
Third, we have barely scratched the surface of the market potential for our
businesses in Executive Evaluation and Executive Development & Coaching.
Prospects
The last 24 months have been some of the worst that the Executive Recruitment
industry has known. Despite that, the Whitehead Mann Group has continued to
outperform its competitors.
In the opening months of the current trading year, revenue has shown early signs
of improvement despite difficult market conditions. The business is also
continuing to generate cash on a monthly basis, sustaining the successful
turnaround in trend from the second half of last year. This is being achieved
through a twin strategy of working capital management and reducing costs.
During last year we faced up to some tough decisions, and made many changes to
get ourselves into the best possible shape. Our people have more than risen to
the challenge, and over the next twelve months I expect that, due to the
outstanding quality of the people we have in the organisation, we will continue
to outperform our competitors.
Stephen Lawrence, Chief Executive Officer
Consolidated profit and loss account for the year ended 31 March 2003
2003 2003 2003 2002
Ordinary Exceptional Total Total
Notes activities items
£'000 £'000 £'000 £'000
Turnover
Continuing operations 61,541 - 61,541 60,509
Discontinued operations 2,747 - 2,747 1,863
Acquisitions 715 - 715 2,197
__________ _________ __________ __________
65,003 - 65,003 64,569
Staff costs 2 (31,652) (6,709) (38,361) (34,843)
Operating charges 2 (23,625) (5,001) (28,626) (19,743)
Depreciation (1,864) - (1,864) (1,661)
Goodwill charges 2 (2,249) (13,375) (15,624) (1,969)
__________ _________ __________ __________
Operating profit / (loss) - continuing
operations 1 5,613 (25,085) (19,472) 6,353
Interest receivable 55 - 55 211
Interest payable and similar charges (1,013) - (1,013) (310)
__________ _________ __________ __________
Profit/(loss) on ordinary activities before
taxation 4,655 (25,085) (20,430) 6,254
Tax (charge)/credit on profit/(loss) on ordinary
activities (2,935) 1,551 (1,384) (2,793)
__________ _________ __________ __________
Profit/(loss) on ordinary activities after taxation 1,720 (23,534) (21,814) 3,461
Equity minority interest (249) 249
__________ __________
(Loss)/profit for the financial year (22,063) 3,710
Dividends paid and proposed (1,784) (3,233)
_________ __________
Retained (loss)/profit for the financial year (23,847) 477
_________ __________
Reserves balance at 1 April 8,167 7,739
Currency translation differences on foreign currency investments (265) (49)
Transfer from merger reserve 18,596 -
_________ __________
Reserves balance at 31 March 2,651 8,167
_________ __________
Basic (loss) / earnings per share 3 (87.15)p 16.08p
Earnings per share before goodwill charges and exceptional items 3 14.69p 34.34p
Diluted (loss) / earnings per share 3 (87.15)p 15.25p
2003 2002
£'000 £'000
Consolidated statement of total recognised gains and losses
(Loss)/profit for the financial year (22,063) 3,710
Currency translation differences on foreign currency investments (265) (49)
__________ __________
(22,328) 3,661
__________ __________
Consolidated balance sheet as at 31 March 2003
2003 2002
Notes £'000 £'000
Fixed assets
Goodwill 25,455 40,481
Tangible assets 6,300 8,541
Investments 1,192 1,192
________ _______
32,947 50,214
________ _______
Current assets
Debtors 13,258 18,264
Cash at bank and in hand 3,490 1,971
________ ________
16,748 20,235
Creditors: amounts falling due within one year (22,225) (22,371)
________ ________
Net current liabilities (5,477) (2,136)
Total assets less current liabilities 27,470 48,078
Creditors: amounts falling due after more than one year (7,015) (7,904)
Provisions for liabilities and charges (3,905) (507)
________ ________
Net assets 16,550 39,667
________ ________
Capital and reserves
Called up share capital 1,314 1,283
Shares to be issued 17 33
Share premium account 4,079 4,018
Merger reserve 8,489 26,415
Profit and loss account 2,651 8,167
________ _______
Equity shareholders' funds 7 16,550 39,916
________ _______
Equity minority interests - (249)
________ _______
Total capital employed 16,550 39,667
________ _______
Consolidated cash flow statement for the year ended 31 March 2003
2003 2002
Notes £'000 £'000
Net cash inflow from operating activities 5 7,148 2,230
Returns on investments and servicing of finance
Interest received 55 211
Interest paid (941) (310)
_____________________________________________________________________ _____ _________ _________
Net cash outflow from returns on investments and servicing of finance (886) (99)
Taxation (1,996) (838)
Capital expenditure and financial investment
Purchase of tangible fixed assets (932) (4,248)
Sale of tangible fixed assets 35 55
_____________________________________________________________________ _____ _________ _________
Net cash outflow from capital expenditure and financial investment (897) (4,193)
_____________________________________________________________________ _____ _________ _________
Net cash inflow/(outflow) before acquisitions and disposals, dividends
and financing 3,369 (2,900)
Acquisitions and disposals
Purchase of subsidiary undertakings (3,872) (3,664)
Cash acquired with subsidiary undertakings 149 1,827
Disposal of businesses 2,538 -
_____________________________________________________________________ _____ _________ _________
Net cash outflow from acquisitions and disposals (1,185) (1,837)
Equity dividends paid (3,153) (2,882)
_____________________________________________________________________ _____ _________ _________
Cash outflow before management of liquid resources and financing (969) (7,619)
Financing
Issue of ordinary share capital 76 74
New bank loan 996 6,417
_____________________________________________________________________ _____ _________ _________
Increase/(decrease) in cash in the period 6 103 (1,128)
_____________________________________________________________________ _____ _________ _________
Notes to the financial information
1 The financial information has been prepared using the accounting policies set out in the Annual Report
2002/03. Discontinued operations did not have a material impact on the operating profit/(loss) and
therefore all activities for the year have been classified as continuing.
2 Exceptional costs
Year ended Year ended
31 March 31 March
2003 2002
£'000 £'000
_______________________________________________________________ _________ __________
Redundancy and related people costs 6,709 2,400
Profit on the sale of Baines Gwinner Training & Careers (75) -
Provisions for vacant property and related asset writedowns 5,076 800
Diminution in carrying value of goodwill 13,375 -
_________ __________
Total exceptional costs 25,085 3,200
========= ==========
On the 27 September 2002 the Group disposed of Baines Gwinner Training & Careers
businesses for a consideration of £2,700,000 in cash. The businesses were
acquired as part of the acquisition of Baines Gwinner Holdings Limited in
November 2001 and, being surplus to the Group's requirements, were sold to
management.
During the year the Group undertook significant cost reduction programmes which
resulted in over 90 people leaving the business at a cost of £6,709,000 (2002:
£2,400,000). As part of the same costs reduction programmes the Group has
vacated five of its leasehold premises and is in the process of vacating a
further two premises. All these properties are being actively marketed and two
have now been let. The exceptional charge represents the costs incurred since
the premises were vacated and a provision equal to at least one year's future
rental cost where the relevant property remains vacant.
In accordance with best practice, the Group undertook a formal review of the
carrying value of goodwill arising on the acquisition of the subsidiary
undertakings. This resulted in the recognition of an exceptional charge in
respect of the diminution in value of goodwill of £13,375,000 (2002: £nil). The
tax effect of exceptional items is disclosed in the financial statements.
3 The calculation of basic loss per share of (87.15)p (2002: profit 16.08p) is
based on a loss for the year of £22,063,000 (2002: profit £3,710,000) and on
25,317,038 shares (2002: 23,070,110) being the weighted average number of shares
in issue during the year (excluding the shares held by the Whitehead Mann Group
Plc Employee Benefit Trust).
Earnings per share before goodwill charges and exceptional items is based on a
profit for the year of £3,720,000 (2002 - £7,922,000) after adding back
amortisation of £15,624,000 (2002:£1,969,000) and exceptional costs after
taxation of £10,159,000 (2002: £2,243,000) and 25,317,038 (2002: 23,070,110)
shares, being the weighted average number of shares in issue during the year.
The directors consider this figure to be helpful to gaining a better
understanding of the underlying business.
Diluted earning per share for 2002 is based on a profit for the year of
£3,710,000 and on 24,323,200 shares.
4 The financial information included in this document does not constitute the
Group's statutory accounts for the year ended 31 March 2003, but is derived from
those accounts. Statutory accounts for 2002 have been delivered to the Registrar
of Companies. The accounts for the year ended 31 March 2003 have not yet been
filed with the Registrar of Companies, but have received an unqualified audit
report and do not contain a statement under section 237(2) or (3) of the
Companies Act 1985.
Notes to the financial information
5 Reconciliation of operating (loss)/profit to cash flows
Year ended Year ended
31 March 31 March
2003 2002
£'000 £'000
__________________________________________ __________ _________
Operating (loss)/profit (19,472) 6,353
Depreciation 1,864 1,661
Goodwill charges 15,624 1,969
Decrease in debtors 3,248 4,021
Increase/(decrease) in creditors 2,010 (11,845)
Loss on disposal of fixed assets 868 10
Movement on investments - 61
Movement on provisions 3,081 -
Profit on sale of business (75) -
__________________________________________ __________ _________
Net cash inflow from operating activities 7,148 2,230
========================================== ========== =========
6 Analysis of net funds/(debt) Cash at Overdraft Sub Bank Loan Total net
bank and total funds/
(debt)
in hand
£'000 £'000 £'000 £'000 £'000
At 1 April 2002 1,154 (3,757) (2,603) (6,617) (9,220)
Cash flow (67) 170 103 (996) (893)
Exchange movement (49) - (49) - (49)
____________________________________ ________ __________ _________ _________ __________
At 31 March 2003 1,038 (3,587) (2,549) (7,613) (10,162)
The cash flow excludes amounts in respect of restricted cash of £338,000 which
is held to guarantee loan note repayments due on an acquisition (2002:
£2,374,000). The decrease in this balance in the year was due to repayments of
these loan notes. The remaining balance of restricted cash at 31 March 2003 was
£2,114,000 (2002: £2,200,000) and is held in foreign currencies to guarantee
rental payments overseas. The movement on this balance is due to foreign
exchange movements. Exceptional costs gave rise to a cashflow in the year of
£7,120,000 (2002: £2,900,000).
7 Reconciliation of movements in shareholders' funds
Total
equity
shareholders' funds
£'000
_____________________________________________________________ ___________________
Loss for period (22,063)
Other recognised gains and losses relating to the year (net) (265)
_____________________________________________________________ ___________________
(22,328)
Dividends paid and proposed (1,784)
New shares issued 746
_____________________________________________________________ ___________________
Net decrease in equity shareholders funds (23,366)
_____________________________________________________________ ___________________
Opening equity shareholders' funds 39,916
_____________________________________________________________ ___________________
Closing equity shareholders' funds 16,550
============================================================= ===================