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(Alliance News) - Recruiter Staffline Group PLC could be forced out of business, it said Thursday, if it is unable to complete a fundraise worth up to GBP41 million.
Staffline also posted delayed 2018 results on Thursday, showing it had swung to a loss.
Staffline is to place shares at 100 pence each to raise up to GBP34 million, and will also carry out an open offer at the same time to raise another GBP7 million. Shares were down 22% on Thursday morning at 117.40p; they had closed Wednesday at 150.00p.
All proceeds will be used to reduce net debt, but the fundraise is subject to shareholder approval.
Net debt at June 30 is expected to be around GBP89 million to GBP94 million. It was GBP16.5 million at the start of 2018, with the increase mainly due to acquisitions made.
If the capital raise is rejected, Staffline said: "The only realistic option for the company would be to seek to further renegotiate or refinance the credit facility, and there can be no certainty the group would be able to do so on commercially acceptable terms, or at all.
"In the event the group is unable to renegotiate or refinance the credit facility and the group's lenders were to demand repayment of all borrowings, a working capital shortfall of the amounts owed would arise, which would have a material adverse effect on the group's financial condition and prospects.
"Without the support of the group's lenders, the company would be unable to meet its liabilities as they fall due, which would likely result in the company becoming immediately insolvent and having to cease trading," Staffline added.
Lenders have agreed to waive any covenants based on June 30 net debt, and if Staffline can raise the funding they also will provide waivers for the next two quarterly test dates. Staffline has agreed to pay its lenders an amendment fee in exchange for the credit facility changes.
Shareholders will vote on the share placing on July 15. Board members are expected to contribute just over GBP250,000 combined to the share purchases.
Shares in Staffline slumped May as it warned Brexit uncertainty has hurt demand and margins, meaning adjusted earnings before interest and tax would be between GBP23 million and GBP28 million in 2019.
In the 2018 results released Thursday, no adjusted Ebit figure was given. However, Staffline has swung to a GBP9.6 million pretax loss, after a GBP24.1 million profit in 2017.
On an adjusted basis, pretax profit fell 0.8% to GBP36.0 million. Revenue rose 18% to GBP1.13 billion, mainly due to acquisitions.
Staffline has not declared a final dividend, having paid an 11.3 pence interim return. This means the 2018 total is 58% lower than the 26.7p in 2017.
Staffline does not expect to pay a dividend at all in either 2019 or 2020.
The results were delayed from late January, when they were meant to be unveiled, after an anonymous email made allegations, including a failure to pay the UK minimum wage. This has led to unexpected costs of GBP15.1 million.
"This has been extremely time consuming but reflects the directors' determination to be thorough and transparent. Where issues have been identified, they have been rectified with the benefit of expert independent advice," said Staffline.
"The group will now move forward with renewed determination and ambition to grow our market leading businesses, further enhance our valuable existing partnerships and regain the confidence of our customers and shareholders."
