Healthcare Locums PLC

("HCL", "the Company" or "the Group")

Final results for the year ended 31 December 2009

Financial Highlights

·     Revenue increased by 5% to £172.1m (2008 restated: £164.5m)

·     Gross margin increased by 23% to £52.9m (2008 restated: £43.1m)

·     Adjusted operating profit* increased by 31% to £25.2m (2008 restated: £19.3m), despite adoption of longer term permanent placement income accounting policy

·     Operating profit increased by 18% to £19.7m (2008 restated: £16.7m)

·     Net margin as a percentage increased by 13% to 11.5% (2008 restated: 10.2%) 

·     Adjusted net margin** as a percentage increased by 25% to 14.6% (2008 restated: 11.7%)

·     Adjusted profit before tax*** increased by 41% to £23.2m (2008 restated: £16.5m)

·     Profit before tax increased by 27% to £17.7m (2008 restated: £13.9m)

·     Adjusted basic earnings per share**** increased by 37% to 16.0 pence (2008 restated: 11.7 pence)

·     Basic earnings per share increased by 24% to 12.3 pence (2008 restated: 9.9 pence)

·     Net debt has fallen to £17.3m (2008: £26.9m)

·     Second interim dividend of 1.5p announced to be paid on 1 April 2010

·     Final proposed dividend of 1.9p per share to be declared by the Board bringing total dividend for 2009 to 5.0p (2008: 2.0p per share)

Operational Highlights

·    Strong organic like-for-like gross profit growth rate of 23% (2008 restated: 44%)

·    International permanent placement division a key growth driver -  delivering  strong pipeline in the second half of 2009

·    The passing of President Obama's healthcare reforms is likely to increase demand for the 12,500 international candidates now on our database

·    The US needs 1.2m new nurses by 2014, this is now expected to increase to circa 1.6m

·    Demand for healthcare staff continues to grow from the NHS with a 20% increase in the market between 2008-2009 (Laing and Buisson 2010)

·    Growing proportion of private sector business, particularly internationally

·    Strategic shift towards higher margin permanent placements - International & UK permanent placements together now contribute 10.2% of Group gross margin (2008 restated: 6.0%)

·    Global networks becoming increasingly important in meeting our clients' needs in the UK

·    New offices opened in Australia, Canada and the Middle East

·    US operation continues successful expansion

·    Continued streamlining of back office and support functions resulted in significant cost savings and improved adjusted net margin percentage** to 15% (2008 restated: 12%)

* Adjusted operating profit refers to operating profit before reorganisation charges, amortisation of intangibles and share scheme charges as shown in the Results Summary in the Chairman's Statement

** Adjusted net margin refers to adjusted operating profit as a % of revenue

*** Adjusted profit before tax refers to profit before tax before reorganisation charges, amortisation of intangibles and share scheme charges as shown in the Results Summary in the Chairman's Statement

**** Adjusted earnings per share refers to earnings per share before reorganisation charges, amortisation of intangibles and share scheme charges as shown in the Results Summary in the Chairman's Statement

Kate Bleasdale, Executive Vice Chairman, said:

"We are very pleased with these results which once again demonstrate the continued success of our strategy of pursuing organic growth in the UK, and international expansion. In the UK we continue to benefit from rising NHS demand for our cost efficient staffing services. Our investment in international recruitment is bearing fruit delivering a strong pipeline of candidates, and significant contract wins during 2009 will benefit 2010 and beyond. The database of international candidates has increased from 4,500 in 2008 to over 12,500 by the end of 2009. We have adopted a more prudent accounting policy to reflect the longer term income generation associated with this growth, particularly now that the US healthcare reform bill has been passed and demand from this market increases significantly. We have positioned our business as a worldwide operator in the specialist health and social care markets. We look forward to the future with confidence."

Kate Bleasdale, Executive Vice Chairman                             020 7451 1451

Diane Jarvis, Chief Financial Officer

Pelham Bell Pottinger                                                             020 7861 3232

David Rydell/Emma Kent/Duncan Mayall

Fairfax I.S. PLC, Nomad and joint broker

Simon Bennett/Ewan Leggat/Laura Littley                             020 7598 5368

KBC Peel Hunt, joint broker                                                    020 7418 8990

Jonathan Marren/ Richard Kauffer

Healthcare Locums PLC

Chairman's Statement for the year ended 31 December 2009

BUSINESS OVERVIEW

I am pleased to report another very successful year for Healthcare Locums plc (HCL) with a strong set of financial results which demonstrate the success of our organic growth strategy.

In view of the significant growth in the international division and its continued expansion in new and worldwide markets, the board has reviewed the accounting policies specifically with reference to revenue recognition on permanent placements involving placing candidates internationally and in the UK.  The past policy was that most revenue was recognised on acceptance of the position by the candidate, we are now recognising most revenue on the candidate start date.  This change in policy reflects the uncertainty in the length of time that it can take to receive the final cash income, particularly in the case of the USA that can take up to four years to provide a visa for our successful candidates. HCL's success in its international permanent placement division on a continuing basis means that this ongoing source of revenue is increasingly a substantial source of income to HCL. The passing of the US reform bill on 21 March 2010 is expected to lead to a further significant expansion in this division over the next few years. For prudence and transparency, the Board has decided to apply this new accounting policy across most of our international and UK permanent placement divisions.

This change in policy will have a significant ongoing cash benefit for HCL arising out of closer alignment of cash receipts with the underlying corporation tax payments.  Had the Board prepared its final results based on the previous accounting policies, the adjusted operating profit would have been in excess of £31m for the year ending 2009, (£21m 2008 on the same basis).

As a result of the company's continuing success I am pleased to announce that the Board is recommending the payment of a final dividend of 1.9p a share in addition to the 1.5p interim dividend announced on the 18 March 2010, bringing the full year dividend to 5.0p for 2009 (2.0p 2008) an increase of 150% on last year.

Gross margin increased to £52.9m (2008 restated: £43.1m). Adjusted operating profit grew by 31% to £25.2m (2008 restated: £19.3m) and adjusted basic earnings per share rose by 37% to 16p (2008 restated: 11.7p).  Operating profit increased by 18% to £19.7m (2008 restated: £16.7m) and basic earnings per share grew by 24% to 12.3p (2008 restated: 9.9p). In 2009 HCL achieved organic like-for-like gross profit growth rate of 23% (2008 restated: 44%). Other income of £2.7m represents the amounts recovered from litigation undertaken by the Company and the costs related to this amounted to £1.4m.

The NHS remains our primary customer in the UK, with demand continuing to increase for frontline staffing in all areas. It is now widely accepted within the NHS that employing temporary staff on a flexible basis is more cost effective than a workforce consisting entirely of permanent staff. More of our clients are adopting this model as they seek to maximise efficiencies and increase cost savings. This has led to increasing demand for our services.  Also, a growing proportion of our business is coming from the private sector.

Demographic trends remain strongly in our favour. The UK's rapidly growing population (a rise of 10 million people over the last 10 years) and ageing population is driving the demand for more acute and long term clinical care. This is complemented by a preference amongst healthcare professionals for more flexible working practices.

The same trend applies to our global marketplaces. We remain particularly optimistic about North America, where government spending on healthcare is projected to grow strongly, regardless of whether healthcare reforms are passed (Source: Report by Federal Centers for Medicare and Medicaid Services, Feb 2010). To meet this growing demand, we have made a further investment in our North American operations and have also established a domestic permanent placement recruitment business within the USA to complement our inbound candidate placement programme. It is the significant growth in this division that has led to a change in our accounting policies. An increasing percentage of our business is now internationally based. We have also strengthened our footholds in our other markets with new offices in Abu Dhabi, Brisbane and Toronto. The candidate database has increased by 177% over the last 12 months, and this is now a significant part of the HCL business.

HCL has continued to streamline its back office operations, including further outsourcing of back office functions to our Indian office. This has resulted in greater cost savings and increased operational efficiencies in our daily payroll and support function systems.

RESULTS SUMMARY

* Adjusted operating profit, adjusted profit before tax and adjusted basic earnings per share are shown before reorganisation charges, amortisation of intangibles and share scheme charges.

BORROWINGS

Net borrowings at the end of the year were £17.3m (2008: £26.9m), a gearing ratio of 26% (2008: 48%). Net borrowings comprise bank loans, liabilities under invoice discounting facilities and liabilities under finance leases less cash in hand.

Earnings per share AND DIVIDENDS

Basic earnings per share is 12.3p (2008 restated: 9.9p). 

The Board is recommending the payment of a final dividend of 1.9p per share in addition to the interim dividend of 1.6p per share paid to shareholders on 9 October 2009 and the second interim dividend of 1.5p per share declared on 18 March, 2010 and payable to shareholders on 1 April, 2010, making a total of 5.0p per share for the year (2008: 2p per share). The final dividend is subject to approval by shareholders at the Annual General Meeting to be held on 26 May 2010.

BOARD CHANGES

During the period Andy McRae, Chief Operating Officer, resigned from the Board of HCL for personal reasons. The Board would like to thank Andy for his positive contribution to the business.  Mo Dedat, formerly Executive Finance Director has taken over Andy's role of Executive Chief Operating Officer.  Diane Jarvis assumed full time responsibility for the Executive financial officer role, as Chief Financial Officer for HCL.

Outlook

Challenging global economic conditions have not affected the Group's key growth drivers: a growing and ageing global population, combined with worldwide shortages of healthcare staff. 

We have seen a robust start to 2010 across all our divisions. The Board remains committed to ensuring the business maximises shareholder returns and we look forward with confidence to another successful year for the Group.

Alan Walker

Chairman

22 March 2010

Healthcare Locums PLC

Executive Vice Chairman's Statement for the year ended 31 December 2009

OVERVIEW

HCL has continued to pursue its organic growth and international expansion strategy to deliver another strong performance in 2009. We continue to capitalise on the specific market dynamics in all our global marketplaces and are very well placed to deliver further growth from our highly scaleable business model. We have continued to streamline back office operations, and support service functions which will facilitate further organic growth from a lower cost base in 2010.

In the UK, we have continued our strategy of increasing our gross margins rather than concentrating on the high volume/low margin business, and as a result, both our Doctors and Allied Health Professional (AHP) divisions have seen significant improvements in total gross margin: a 13% increase in gross margin in the Doctors division (2009: £14.3 million and 2008: £12.6 million) and a 35% increase in the AHP division (2009 £24.5 million and 2008:  £18.1 million). 

The Social Care division has undergone significant re-structuring during 2009. This division has grown its gross margin percentage to 23.4% (2008: 21.3%) by concentrating on off-contract placements, although this has meant a reduction in both turnover and absolute gross margin for this division when compared with last year. However, during 2009 the biggest challenge for this division has been finding appropriately qualified social workers, as a 14% vacancy factor for UK social workers has resulted in the potential pool for locums diminishing. As a result HCL set out to increase the number of social workers brought in from abroad, by opening new offices in Canada and Australia. We are confident that this division will benefit from the actions that we have already taken in the future.

Our international permanent placement division has continued to go from strength to strength, following our investment in North America, Canada, the Middle East and Australia. Our investment in expanding our networks and building relationships at Government level across the world is bearing fruit and we enjoy first mover advantage in a marketplace conservatively estimated to be worth US$30 bn.

The Group achieved a marked increase in the number of international permanent placements in the second half of the year, with a candidate database that has increased by over 8,000 candidates over the last 12 months. With new offices opened in Australia, Canada and the Middle East and expanding operations in other key markets, HCL intends to increase the number of these high margin permanent placements. The Board believes that this is a key area of future growth for the Company and that our international networks and pipelines will become increasingly important in meeting our clients' demands in our three UK locum divisions.

In view of the significant growth in the international division and its continued expansion in new and worldwide markets', the board has reviewed the accounting policies specifically with reference to revenue recognition on permanent placements involving placing candidates internationally and in the UK.  The past policy was that most revenue was recognised on acceptance of the position by the candidate, we are now recognising most revenue on the candidate start date.  This change in policy reflects the uncertainty in the length of time that it can take to receive the final cash income, particularly in the case of the USA that can take up to four years to provide a visa for our successful candidates. With the passing of the healthcare reform bill in the US, it is anticipated by the Board that this market will continue to grow strongly, with the need for up to 1.6m new nurses and other healthcare workers over the next 5-10 years, HCL has therefore taken a more prudent approach on international and UK accounting policies.

The health and care staffing market grew by 20% between 2008 and 2009 (Laing and Buisson Report 2010). This is much higher than HCL was originally predicting at the beginning of 2008, and in the meantime all the main political parties have pledged their commitment to protect frontline clinical and social care staffing services.   

In addition, it is now recognised within the NHS that temporary and flexible staff are more cost effective than full time staff. Agency staff can be between 8% and 24% cheaper than their permanent equivalents (Laing and Buisson Report 2010 and Company research). More of our clients are now adopting our recommended optimum flexible working model of 85:15 permanent to flexible staff, which allows for a more cost effective and responsive workforce which can meet fluctuating demand without wasting resources. The strong acceleration in agency spending by the NHS during the recessionary period of 2008 and 2009 is evidence of this trend, which the Board believes will continue as the NHS seeks to maximise efficiency and cost savings in the years ahead.

BUSINESS REVIEW

Doctors

Doctors accounted for approximately 30% of the HCL locum business by gross margin in 2009 (2008: 31%).  The value of the UK medical locum market has grown by approximately 23% from 2008 to 2009, and the total spend now stands at approximately £677m per annum (Laing and Buisson Report 2010).

The strategy used in 2009 was to move the Doctors division away from high volume, lower margin business towards higher margin placements. This is reflected in the increase in gross margin as a percentage of turnover to 26% (2008: 23%). We have opened a new specialist consultant grade doctors business in Leeds in order to harness the more specialised, higher margin end of the doctors staffing market in the UK, as well as increasing the proportion of permanent placements.

The European Working Time Directive, implemented in August, reduced the maximum number of hours doctors can work to a 48 hour working week in order to bring the UK in line with Europe. This is considerably lower working hours than was traditionally the case and led to increased demand from NHS clients needing to fill their staff rotas. In addition, UK Government changes to the Highly Skilled Migration Programme restricted the international supply of doctors into the UK. In order to meet demand HCL has had to be increasingly innovative in recruiting doctors from abroad. Currently approximately 78% of our locums are internationally trained.

With a growing vacancy rate, and an increased number of women in the medical field who are inclined towards flexible working, the challenge is to find a sufficient supply of qualified doctors to meet our clients' demands. Increasingly, we are looking abroad for highly qualified, experienced, and compliant medical staff.

Social Workers

The Qualified Social Workers (QSW) division in 2009 represented approximately 18% of total locum gross margin of the HCL Group (2008: 24%).  The division has grown its gross margin percentage from 21.3% in 2008 to 23.4% this year as a result of its strategy to target higher margin, lower volume business. The QSW market in 2009 was worth just over £519m, an increase of 9% on the previous year (Laing and Buisson Report 2010). 

This division has seen considerable change in 2009 with new management and restructuring to increase efficiencies and profitability. We are enlarging and improving our service offering and increasingly supplying to clients outside of traditional managed vendor supply systems. The strategy of moving off contract has had the effect of reducing turnover and gross margin in this division in the short term but we believe that the steps we have taken will be hugely beneficial to the division. Month on month growth in this division during 2009 has continued into 2010 with a run rate annualised turnover (Run rate turnover annualised refers to the turnover for the four weeks in February 2010 extrapolated to an annual basis) over the last 4 weeks in excess of £42m. HCL remains the market leader in the UK for the provision of QSWs to local authorities.

The vacancy rate for QSWs in the UK is acute, around 14%. Local Authorities are increasingly reliant on our services to maintain their frontline staffing levels. In addition to this, the recommendations of the Government appointed Social Care Task Force are expected to increase the vacancy rate in the short term as they point to a longer training period for new social workers. Growing numbers of QSWs are now choosing to work as locums for the preferential payrates and professional opportunities, meaning that we have a large database of highly experienced professionals whose skills are in very high demand across the UK.

As with our other divisions, we are sourcing more highly skilled candidates from abroad in order to meet demand. In particular, we are sourcing candidates from Australia and Canada and have strong and visible pipelines in both countries. These social workers are highly qualified, having completed a four year degree course (the UK social work degree programme is currently three years), and are accustomed to similar socio-economic issues as in the UK. The Board anticipates that international recruitment will be a key driver of further growth in our QSW division.

Allied Health Professionals

Allied Health Professionals (AHP) accounted for 52% of the HCL locum business at gross margin level in 2009 (2008: 45%). Gross margin percentages have increased by over 11% to 34% (2008: 30.5%).  The size of this market sector increased by approximately 26% between 2008 and 2009, and is now estimated to be worth £617 million on an annualised basis (Laing and Buisson Report 2010).

AHP refers to a distinct grouping of highly trained, specialist staff who work within the healthcare sector. This group includes therapists and medical scientists (HSS) such as Physiotherapists, Occupational Therapists, Speech and Language Therapists, Dieticians, Podiatrists, Pharmacists, Biomedical Scientists and Radiographers.

Our AHP division continues to be the largest revenue-generating division within HCL, driven by a severe shortage of these highly specialised professionals in the UK. Increasingly, we are addressing this shortage by sourcing staff from around the world via our international networks, and around 45% of the AHPs that we place each week currently come from overseas.

This division is an approved supplier to the NHS on the National Framework Agreement, which was awarded in early 2009 and is due to run for the next two years. This means that we have strong and visible pipelines of business with some of the UK's leading NHS Trusts until early in 2012. In addition, we have a thriving "off-contract" business whereby we supply highly sought after professionals to our NHS clients outside the Framework. We also provide staff to other public sector organisations and an increasing number of leading clients within the private sector.

With continuing severe shortages, and a large database of highly trained and experienced candidates, the Board is confident that this division will continue to grow by taking market share from the competition, securing more private sector business and fielding more highly qualified candidates from abroad.

Permanent placements

HCL's investment in building its international permanent placements division came to fruition in 2009. As a start up business just five years ago, HCL have built a candidate database of over 12,500 skilled healthcare professionals and have contracts currently in over 10 countries worldwide.

With well-established operations and client relationships in North America, the Middle East, Canada and Australia, HCL sources pipelines of appropriately qualified healthcare professionals and matches them with areas of demand around the globe. Increasingly, healthcare professionals are forming a globalised workforce and our strategy is to facilitate the matching of supply and demand. We target agreements at Government level and increasingly Governments approach us to assist them with their existing migration programmes. One example of this is the Memorandum of Understanding signed with the Government of South Korea in November, to help train and place its surplus nurses in the Middle East, North America, and elsewhere in the world.

We have retained contracts with leading healthcare facilities in all our target marketplaces, and developed our foothold particularly well in North America and the Middle East. The healthcare reforms in the US represent a huge and exciting opportunity for HCL. In anticipation of the changes in healthcare provision in the US we expanded our presence in that market during 2009. With an estimated further 32m people now having access to healthcare insurance, demand for services, and therefore healthcare staff will increase. This is on top of an existing endemic shortage of nurses in the US with 1.2m new nurses required by 2014.

Our UK permanent placements division is thriving, with the NHS increasingly seeking long terms solutions to large scale vacancies by sourcing groups of staff from overseas. We also have rapidly growing domestic permanent placements within this division, servicing both the NHS and the private sector, with typically much higher margin than is the case for locum placements.

In addition, the networks and pipelines we have built around the world are proving hugely beneficial to our three locum UK divisions as we are able to source scarce health and social care professionals from overseas to meet demand in the UK. We look forward to the future with confidence.

Kate Bleasdale

Executive Vice Chairman

22 March 2010

Healthcare Locums PLC

Company number: 04736913

Consolidated Statement of Comprehensive Income     

Healthcare Locums PLC

Consolidated Statement of Changes in Equity

Healthcare Locums PLC

Company number: 04736913

Consolidated Statement of Financial Position

Healthcare Locums PLC

Consolidated Statement of Cash Flows

1  Annual report

The financial information set out in these final results does not constitute the company's statutory accounts for 2008 or 2009.

Statutory accounts for the years ended 31 December 2009 and 31 December 2008 have been reported on by the Independent Auditors.  The Independent Auditors' Report on the Annual Report and Financial Statements for 2008 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 237(2) or 237(3) of the Companies Act 1985.  The Independent Auditors' Report on the Annual Report and Financial Statements for 2009 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

Statutory accounts for the year ended 31 December 2008 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2009 will be delivered to the Registrar in due course.

The financial information set out in these final results has been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively Adopted IFRSs).   The accounting policies adopted in these final results have been consistently applied to all the years presented and are consistent with the policies used in the preparation of the statutory accounts for the period ended 31 December 2009.  

Other than as indicated below, the principal accounting policies adopted are unchanged from those used in the preparation of the statutory accounts for the period ended 31 December 2008.  There has been two changes in accounting policies that affect the accounts.

Change in accounting policies

a) Change in revenue recognition policy

There has been a change in the revenue recognition policy in the year, and consequently the results of  the previous years have been restated.  In view of the significant growth in the international division and its continued expansion in new and worldwide markets, the board has reviewed the accounting policy specifically with reference to revenue recognition on permanent placements involving placing candidates internationally and in the UK.  For arrangements for the placement of candidates, other than those including the provision of services over a period of time, the past policy was that revenue was recognised on acceptance of the position by the candidate. Our new policy is to recognise revenue on the candidate start date.  This change in policy reflects the uncertainty and subjectivity over assessing candidate drop out rates and the associated timing and amount of income that will ultimately be received. The new policy provides more relevant and reliable financial information.

The impact of the prior year adjustment has been to reduce the revenue reported in 2008 by £1,929,000. The tax affect of this adjustment has resulted in a reduction in the tax charge for 2008 of £540,000, with a corresponding decrease in the tax payable.  The impact on the Statement of Financial Position is to reduce the accrued revenue at 31 December 2008 by £5,993,000 down to £5,970,000, and £4,063,000 down to £4,392,000 at 1 January 2008.

The new accounting policy is as follows:

·    Revenue from temporary placements which represents amounts billed for the services of temporary staff including the salary cost of these staff. This is recognised when the service has been provided;

·   Revenue from permanent placements is generally recognised at the date when a candidate commences work. However, where the placing arrangement is such that the group is required to provide a continuous level of service over a period of time which may include assistance with visa applications and other arrangements in the country of placement for applicants from overseas, revenues are recognised in line with the provision of these services. For these latter arrangements, a provision is made against accrued income for possible cancellations of placements by the candidate prior to the commencement of employment based on past experience of this occurring. 

In accordance with IAS 1 (revised) a balance sheet as at the date of the beginning of the earliest comparative period (1 January 2008) has been presented. 

b) New standards, interpretations and amendments effective from 1 January 2009

During the year the Group has adopted IAS 1, "Presentation of Financial Statements (revised 2007)".

IAS 1, Presentation of Financial Statements (revised 2007) includes the requirement to present a Statement of Changes in Equity as a primary statement and introduces the possibility of either a single Statement of Comprehensive Income (combining the Income Statement and a Statement of Comprehensive Income) or to retain the Income Statement with a supplementary Statement of Comprehensive Income.   The first option has been adopted by Healthcare Locums Plc.  As this standard is concerned with presentation only it does not have any impact on the results or net assets of the Group.

2          Other operating income and related administration costs

Other operating income relates to the proceeds of various legal actions with which the group has been involved in the year.  Legal costs of £1,392,000 were also incurred in pursuing these legal actions.

3          Reorganisation costs

The reorganisation costs incurred in 2009 related to employee costs associated with the ongoing off-shoring of back and middle office functions to India, and also the ongoing restructuring within the social care division.  Both of these projects began in 2008.

Directors costs comprise amounts paid to ex-directors for periods after they had ceased to work for the Group, including payments for compensation for loss of office.

4      Profit from operations

5      Earnings per share

At 31 December 2009, there were 4,216,266 (2008: 2,706,266) potentially dilutive share options which have not been included above as they do not affect EPS, on the basis that they are not currently dilutive.

6   Dividends

The Directors are proposing a final dividend of 1.9 pence per share  (2008 - 1.2p) per share totaling £1,989,000 (2008 - £1,251,000).  This dividend has not been accrued in the Consolidated Statement of Financial Position. A second interim dividend of 1.5 pence per share will be paid on 1 April 2010.

7 Net borrowings

The Groups net borrowings and gearing ration at the balance sheet date is shown below:

The decrease in gearing has been brought about by the positive cash flow generated and increased profitability achieved, by the Group now that the Group is focused on organic growth and is not currently contemplating any acquisitions.  The Group intends to further reduce this gearing ratio going forward.