INTRODUCTION

During 2004, Spring cemented its position as the leader in UK technology staffing and workforce management services, and continued to grow its general staffing operations. Our strong organic growth and the benefits of prior year acquisitions enabled us to increase revenues and operating profits significantly.

Revenues from continuing operations grew by 37% to £476.4 million, of which 28% was organic growth and 9% arose from the acquisition of the Best International businesses. Operating profits* increased almost fivefold, from £1.9 million to £9.0 million. Profit before taxation increased by £24.8 million to £5.8 million.

Spring has now positioned itself as the UK’s leading technology staffing company and one of the UK’s major recruitment businesses. In 2005 we plan to invest in our staff and systems, and in new branch locations and new services, as we continue to build our reputation as the staffing and workforce management services provider of choice.

GROUP RESULTS

The table below provides a comparison of the 2004 and 2003 results, demonstrating progress in both revenues and operating profits* in each of the segments.

	2003				2004
£ million	Revenue		Operating profit*		Revenue		Operating profit*
Corporate Accounts	209.9		3.3		295.6		6.5
Contract Services	39.7		0.9		56.9		2.1
Recruitment Services	4.6		(0.7)		10.2		0.7
Triage	28.7		(0.1)		42.4		0.8
IT Solutions	8.5		1.3		10.6		0.9
Spring Technology Staffing Services (STSS)	291.4		4.7		415.7		11.0
Spring Personnel	56.5		2.2		59.2		2.7
hy-phen	0.5		(1.4)		1.5		(0.7)
Total Operations	348.4		5.5		476.4		13.0
Central Costs	-		(3.6)		-		(4.0)
Total	348.4		1.9		476.4		9.0

* Continuing operations before goodwill amortisation and exceptional items

SPRING TECHNOLOGY STAFFING SERVICES (“STSS”)

STSS increased turnover in 2004 by 43% to £415.7m (2003: £291.4m). Operating profit increased by 134% to £11.0m (2003: £4.7m).

During 2004 the UK staffing industry experienced a resurgence in demand for IT professionals, due mainly to the resurrection of projects delayed during the economic downturn. In addition, there was a significant rise in new IT projects, integration projects arising from increased M&A activity, and investment in specific areas such as the internet, security, telecoms and storage.

This strengthening demand led to increased requirements for both permanent and contract IT professionals, and resulted in skills shortages, pay rate and fee rises, and increasing contract lengths. STSS benefited from these improving trends and successfully executed its strategy to move into higher margin technology staffing segments. STSS recorded a 66% increase in permanent recruitment business, which grew from 14.2% of STSS net fee income in 2003 to 16.2% in 2004, whilst fee rates in the contract technology staffing business grew by over 7.5% and contract assignment lengths increased by around 15%.

Corporate Accounts

The corporate accounts business, providing contract technology and telecoms staff to major corporate and public sector businesses, increased revenues by 41% to £295.6 million (2003: £209.9 million), and operating profit* doubled to £6.5 million (2003: £3.3 million). Corporate Accounts benefited from economies of scale and improved operational gearing as its growth continued, whilst fee rates and contract duration trends continued to improve as market conditions firmed over the course of the year.

Contract Services

Following the successful integration of the Best International businesses, Contract Services continued to grow strongly. Revenues increased from £39.7 million in 2003 to £56.9 million in 2004, with operating profits* increasing to £2.1 million (2003: £0.9 million), driven by the strategic focus on local higher-margin contract technology placements.

Recruitment Services

The permanent technology recruitment business more than doubled its revenues in 2004 to £10.2 million (2003: £4.6 million), with over 1,500 technology specialists placed into permanent positions. Operating profits* were £0.7 million (2003: £0.7 million loss). The Buchanan Scott business made an excellent start, providing both executive search and interim management services for senior level technology, marketing and finance requirements.

Triage

Triage, a global leader in the provision of highly skilled IT and telecoms specialists, continued the trend of strong organic growth seen in the first half of 2004. Revenue increased by 48% to £42.4 million (2003: £28.7 million), and this business moved into profit in 2004 with operating profits* of £0.8 million (2003: £0.1 million loss), in accordance with our strategic plans.

Spring IT Solutions

Revenues advanced 25% to £10.6 million in IT Solutions (2003: £8.5 million), whilst operating profits* declined to £0.9 million (2003: £1.3 million) as a result of investment in new services. The division’s market-leading Employed Consultant Model continued to establish itself as an innovative new technology staffing offering, and developed significant new accounts, particularly in Software Testing.

SPRING PERSONNEL

Spring Personnel increased turnover in 2004 by 4.8% to £59.2m (2003: £56.5m). Operating profit increased by 23% to £2.7m (2003: £2.2m).

Spring Personnel won a number of new major accounts, including Regus, Bradford Metropolitan District Council and Tube Lines, which contributed significantly to the revenue and operating profit growth. At the same time, the branch network recorded strong growth in both temporary and permanent business volumes and rates. Net fee income grew by 13% over 2003, including an increase of 7% in temporary recruitment. Permanent recruitment recorded a strong performance in line with the increased strategic focus on this business, with net fee income up 30% over 2003. New branches were opened in Bristol and Milton Keynes and deployment of a new integrated front office system began with completion planned for the first half of 2005.

Elizabeth Hunt, the Group’s specialist PA/Secretarial recruitment business, performed strongly with revenues growing by 12% to £3.7 million. A number of new clients were won in the City and West End branches and a new branch was opened in Leeds. This strong brand will be developed nationally during 2005, starting with a further new branch in Manchester in the second quarter.

Spring Accountancy was launched in 2004 and achieved a promising start with a major new contract win at Network Rail. This new offering has been established in five branches across the UK and will be further developed during 2005.

In November 2004 John Simmonds was appointed as Managing Director for the Group’s general staffing businesses. John was formerly the Chief Executive of Parkhouse Personnel after spending several years at Adecco. In January 2005 Diane Bradbury joined Spring Personnel as Operations Director, following a highly successful 21-year career with Adecco.

The new management team of Spring Personnel has developed a strategy to position the business as the largest local recruitment agency in the UK, and this strategy will commence implementation in 2005 with the opening of a number of new branches.

HY-PHEN

hy-phen, Spring’s workforce management technology and service operation, continued its growth during the second half of 2004. hy-phen has enabled Spring to win or renew a number of contracts for full-scale Managed Service and Recruitment Process Outsourcing programmes, generating more than £150 million of staffing revenue throughout the Group in 2004.

Revenues trebled to £1.5 million from £0.5 million whilst losses halved from £1.4 million to £0.7 million. In the second half of 2004, losses were reduced to £0.2 million.

Central costs

Central costs increased moderately to £4.0 million (2003: £3.6 million) primarily as a result of increased investment in marketing activities as the Group invested for increased market share.

Exceptional items

Exceptional items in 2004 were £0.6 million as expected. These relate to the cost of stock options granted to former Best International employees in connection with the acquisition of the Best International businesses in June 2003. The Group successfully exited a number of legacy properties during the year and has consequently reduced its provisions, resulting in an exceptional release of £0.5 million, offset by a restructuring charge of £0.5 million.

Taxation

The tax credit of £4.8 million relates primarily to a £4.9 million deferred tax asset arising on prior year losses, which has been recognised as a result of the Group’s improved trading position. This is offset by a £0.1 million tax charge in respect of overseas trading.

Earnings (loss) per share

Basic earnings per share increased to 7.00p (2003: loss per share 12.92p) and fully diluted earnings per share to 6.80p (2003: loss per share 12.92p).

Balance sheet and cash flow

Net assets at the year end were £79.5 million (2003: £67.6 million). Total cash flow was negative £5.1 million for the year as a whole, comprising a significant outflow in the first half of the year, when the technology contractor base grew substantially, followed by positive total cash flow in the second half of the year.

Proposed dividend

The Board is recommending an increase in the proposed final dividend from 0.1p to 0.2p in view of the Group’s transition to improved profitability levels, making a total of 0.3p per share for the year (2003: 0.2p).

International Financial Reporting Standards (“IFRS”)

Spring is required to adopt IFRS and revised International Accounting Standards for financial statements from 2005. The Group has made significant progress in identifying and quantifying the key accounting changes and accounting policy differences between UK GAAP and IFRS and will fully comply with the accounting and reporting requirements of IFRS in 2005.

CURRENT TRADING AND PROSPECTS

During the course of 2004 the UK staffing industry experienced a resurgence in demand for IT professionals after almost three years of declining demand. This was due mainly to the resurrection of projects delayed during the economic downturn. In addition, we have seen a significant increase in new IT projects, major integration projects arising from increased M&A activity, and investment in the integration of the internet into core business practices. These trends have continued into 2005 and Spring has started the year on a positive note.

Richard Barfield
Chief Executive Officer
22 March 2005