Staffline Regulatory News (STAF)

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STAFFLINE GROUP PLC

('Staffline', 'Company' or 'the Group')

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2018

Staffline Group plc, the Recruitment and Training organisation, today announces its results for the year ended 31 December 2018, a summary of which is as set out below.

Audited Annual Report

A copy of the audited 2018 Annual Report has been sent to shareholders.

The Annual Report, together with a presentation of the results, will be available on our website https://www.stafflinegroupplc.co.uk/ from 07.00 am on Thursday 27 June 2019.

Financial summary

* Underlying excludes amortisation of intangible assets arising on business combinations, business acquisition costs, exceptional reorganisation costs, exceptional NMW remediation and financial penalties, revised audit scope and increased audit fees and the non-cash charge/credit for share-based payment costs.

** Net debt including unamortised transaction costs

Delay in publication of results and National Minimum Wage issues

The Group had planned to release its unaudited results for the year ended 31 December 2018 on 30 January 2019. On the evening of 29 January 2019, the Group auditors received an anonymous email which made various allegations in relation to payroll and invoicing practices and associated VAT liabilities and accruals/provisions. A detailed explanation is included in the Chief Executive Officer's Statement. The Directors sincerely apologise for the delay in the publication of the 2018 results. Since the allegations were received, the Group has carried out an exhaustive investigation and review. 

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. 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. 

Exceptional costs of £15.1m have been recorded in relation to the historical non-compliance with the National Minimum Wage ('NMW') regulations.

Recognising this difficult period in the Group's circumstances, the Executive Directors have voluntarily waived all bonus entitlements in relation to 2018.

Financial highlights

· Group revenues increased 17.7% to £1,127.5m (2017: £957.8m). Growth of £166.8m from seven acquisitions during 2018 and full year benefit of the two acquisitions made in 2017.

· Organic revenue growth of +0.3%, with Recruitment +1.9% but PeoplePlus -11.8% due to the wind down of the Work Programme (non-Work Programme revenues grew by +31%: organic growth of +20%).

· Underlying profit before tax down 0.8% to £36.0m (2017: £36.3m) - Recruitment growth of £3.6m, PeoplePlus £3.9m lower. Reported loss before tax of £9.6m was £33.7m lower than last year's profit before tax of £24.1m due to a £33.4m increase in non-underlying charges in 2018. Non-underlying charges include a provision for National Minimum Wage remediation costs and financial penalties; and the reorganisation of the PeoplePlus division.

· Underlying diluted earnings per share down 2.2% to 110.1p (2017: 112.6p).

· Final dividend per share cancelled (2017: 15.7p).

· Net debt £63.0m, an increase of £46.5m in the year (December 2017: £16.5m) primarily driven by £49.6m spent on acquisitions. In addition, non-underlying reorganisation costs and an increase in working capital, primarily due to the timing of collections and payments contributed to the increase. Net debt at 30 June 2019 expected to be in the range £89m to £94m.

· Refinancing of £150m of bank borrowings during 2018 which are subject to amendment as more fully described in the Proposed Placing announcement released by the Company today.

Operational highlights

Recruitment division

· Acquired and integrated six businesses during the year, which has provided an expanded footprint in the core blue collar vertical. These acquisitions contributed to the overall Recruitment division revenue growth of 21% and collectively performed better than expected during the year.

· Significant investment in the Group's proprietary digital platforms which is both increasing candidate attraction and retention capability, whilst providing unrivalled insights that enable us to improve worker and customer experience. Our worker engagement strategy is providing strong service differentiation and driving worker and customer loyalty.

· Strong performance in the Logistics vertical where the Group continues to expand, both through new and existing clients, offsetting macro-economic headwinds in the retail and automotive sectors.

· New business wins (Wiggle, Pukka Pies, PepsiCo, Argos, Ocado, Huntapac, Hermes) whilst growing our presence with existing customers (Asda, Royal Mail, Morrisons, Muller, Lidl, Bakkavor). Our new business pipeline remains strong.

PeoplePlus division

· Close to completing the transformation away from the Work Programme to becoming the UK's leading skills and training provider.

· Acquisition of LearnDirect Apprenticeships has enabled Staffline to create the UK's leading Apprenticeship Levy business with significant progress in securing Apprenticeship Levy wins.

· The Work Programme contract ended in March 2019, following an agreement with the Department for Work and Pensions ("DWP").

· Significant exceptional costs have been incurred in 2018 relating to the structural reorganisation of the division into the UK's leading skills and training business, all of which have been charged in 2018. The Board do not anticipate any further exceptional costs in relation to the reorganisation of the PeoplePlus division.

· Multiple contract wins in the year, driving a strategic step change for the business, notably New Enterprise Allowance extension, Gloucestershire Carers Hub and, at the end of the year, a doubling of our Prison Education contract.

· Division successfully repositioned with a diversified set of contracts and customers with multiple end dates.

Post balance sheet events

· Following a weak start to the year, 2019 underlying EBIT guidance reduced to a range of £23m to £28m.

· Staffline is today announcing a proposed Placing of new ordinary shares to raise £34m via an accelerated bookbuild, in conjunction with future covenant waivers from the Group's lenders. In addition, Staffline is also announcing a proposed Open Offer of new ordinary shares to raise up to a further £7m.

Publication of non-statutory accounts

The financial information set out in this announcement does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006 but have been extracted from the Group's 2018 financial statements upon which the auditor's opinion is not modified and does not include any statement under Section 498 of the Companies Act 2006, but does include an Emphasis of Matter on the impact of non-compliance of National Minimum Wage legislation non-compliance which is more fully described on page 63 of the 2018 Annual Report.

Dividends

The Group has suffered a number of trading headwinds during the first half of 2019, together with significant one-off exceptional costs which are higher than previously estimated. As a consequence, no final dividend is proposed for the year, with no dividend expected to be proposed in respect of 2019 or 2020.

Board Change

John Crabtree, Chairman has advised the Board of his intention to step down as a Director of the Company and a succession plan will now be instigated. The Board wish to place on record its appreciation of John's service to Staffline over the past 8 years. Further the Board will appoint a further non-executive Director to the Board in the near term and shareholders will be updated in due course.

Outlook

On 17 May 2019 the Group issued a trading update referencing headwinds faced in both of its training and recruitment divisions. The Group's outlook for 2019 remains challenging but, following a weak start to 2019, we are trading in line with revised market expectations. The Board continues to expect the Group to report underlying operating profits for the year ending 31 December 2019 in the range of £23-28m and, before proceeds of any equity capital raise, net debt at year end to be in line with current market expectations.

The ongoing Brexit uncertainty is impacting the UK labour market and led to a number of customers transferring a significant volume of their temporary workforce into permanent employment to mitigate the risk of that labour market tightening. Typically, this reaction to uncertainty reverses over time, but we expect it will continue to impact temporary worker demand throughout the current year. There has also been a slowdown in new contract momentum in the current financial year, which the Company largely attributes to the impact of the delay in publication of the 2018 Full Year results.

Notwithstanding these current headwinds, the Recruitment division is beginning to see the definitive benefits from the Company's market-leading approach to worker engagement and digitally enabled candidate attraction. Management expects this strategy to result in increasing differentiation and to support future growth.

In PeoplePlus, the successful transition from a Work Programme provider to the UK's leading skills and training company is almost complete. With c. 60% of 2020 revenues already contracted, the Group maintains a positive outlook for PeoplePlus in 2020 under its new operating model. However, performance in 2019 will be affected by continued delays in apprenticeship new starts. This is partially as a result of the slow take-up of the Apprenticeship Levy scheme nationally, but also a reflection of the current economic uncertainty. Sectors such as retail for example, are delaying Apprenticeships whilst store restructure programmes are completed, however management remains confident that this market is attractive, notwithstanding this timing effect. However, the other elements of PeoplePlus, which are expected to contribute c.85% of PeoplePlus revenue in 2020, continue to develop well.

Trading has continued as expected since 17 May 2019. The Board reiterates the above underlying operating profit guidance for the full year but expects a greater weighting toward the second half of the year than normal due to the transformation in PeoplePlus and the difficulties the Recruitment business has faced in the first half.

Chris Pullen, Chief Executive Officer of Staffline, commented:

"The delay in the publication of our 2018 results has clearly been frustrating for all involved, but with the historical National Minimum Wage issues now resolved, we expect Staffline to return to normalised trading and to capitalise on its leading position in its key markets and deliver future growth.

Despite these challenges, 2018 was a year of transformation across both of our operating divisions as we set the foundations for the clearly identifiable future growth opportunities within both of these divisions.

In Recruitment, we have completed a fundamental cultural change and created a highly differentiated operating model based on Experience Management, putting the worker at the heart of everything we do. Our unique methodology is producing measurable improvements in worker engagement, which is resulting in defined improvements in retention and productivity. We exist to help make our customers more successful. In a tight labour market, this leading strategy supports this aim and clearly differentiates our service offering. Historical issues with National Minimum Wage compliance have been fully rectified across a number of food production facilities. With lessons learned, we look forwards to operating with uncompromisingly high standards into the future. 

In PeoplePlus, the previous long-term core of the business has been the Government's Work Programme. Following its success and the current historically low levels of unemployment, the scheme went into a wind-down phase in 2018 with the last customers finishing in March 2019. PeoplePlus' strategy has been to leverage the core skills and competences within the organisation to fully repurpose as a skills and training business. This ambitious transformation is near completion and PeoplePlus is now the UK's leading skills and training provider."

Market Abuse Regulation:

This announcement is released by Staffline Group plc and contains inside information for the purposes of the Market Abuse Regulation (EU) 596/2014 ("MAR") and is disclosed in accordance with the Company's obligations under Article 17 of MAR. The person who arranged for the release of this announcement on behalf of Staffline Group plc was Mike Watts, Chief Financial Officer.

About Staffline - Recruitment, Training and Support

Enabling the Future of Work™

Staffline is the UK's market leading Recruitment and Training group. It has two divisions:

Recruitment Division

The UK's leading provider of flexible blue-collar workers, supplying over 60,000 staff per day to c. 1,600 private sector clients, across a wide range of industries including agriculture, drinks, driving, food processing, logistics and manufacturing. It operates from over 450 locations in UK, Eire and Poland. Its world leading Customer Experience platform provides optimised customer-based staffing management solutions whilst providing market-leading levels of job satisfaction for workers.

PeoplePlus Division

The leading adult skills and training provider in the UK, delivering apprenticeships, adult education, prison education and skills-based employability programmes across the country.

Skills and Training - market leading provider of Apprenticeships (both Levy and non-Levy), learning and development, adult education and health and well-being programmes to the Private and Public sector.

Justice and Community - largest independent provider of education and training services for prisoners and ex-offenders, as well as individual support services for carers and people with disabilities, both at home and in the work place.

Employability - market leading provider of programmes providing back-to-work education, skills support services to the unemployed and enterprise advice to individuals wanting to start their own business.