STAFFLINE GROUP PLC

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

UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2021

Staffline Group PLC, the recruitment and training group, announces its unaudited results for the six months ended 30 June 2021.

* Operating profit before amortisation of intangible assets arising on business combinations and, in the six months ended 30 June 2020, goodwill impairments and other non-underlying charges (see note 3).

** EBITDA after operating lease payments and before, in the six months ended 30 June 2020, non-underlying charges (see note 3).

***Comparative results for the period ended 30 June 2020 have been restated to exclude the activities that were discontinued in 2020.

**** Excludes non-underlying refinancing costs relating to 2020 only.

Key financial highlights

·    Gross profit of £39.0m up 14% (H1 2020: £34.2m)

·    Gross profit margin increased to 8.7% (H1 2020: 7.9%)

·    Underlying operating profit increased to £4.6m (H1 2020: £0.1m)

·    Gross profit conversion to operating profit increased to 11.8% (H1 2020: 0.3%)

·    Finance costs reduced by 33.3% to £1.4m (H1 2020: £2.1m)

·    Strengthened balance sheet, with net cash of £20.9m (H1 2020: net debt £(36.2)m)

·    The net cash/(debt) improvement reflects the net proceeds of £46.4m from the equity raise, further improvements in trading cash flow and cash collection, including c.£15m of timing differences

·    New receivables facility of £90.0m over a period of 4.5 years

Key operational highlights:

·    Group underlying overhead cost base broadly flat versus last year at £34.4m and down 12.9% versus H1 2019 (H1 2020: £34.1m; H1 2019: £39.5m)

·    Staff productivity improvements

o  Recruitment: Gross profit per fee earner up 21.4% on H1 2020 to £37.5k (H1 2020: £30.9k)

o  Training: Revenue per employee up 30.6% on H1 2020 to £30.7k (H1 2020: £23.5k)

·    Strong six months of trading across the Group

o All three divisions delivered operating profit growth for the six months to 30 June 2021 

o  Exposure to resilient growth sectors such as food, logistics and e-commerce underpinned performance

·    Blue-collar market share gains with strong customer retention rates and new business wins

·    PeoplePlus secured three Restart sub-contracts with prime providers worth up to a maximum of £90m revenue over four years dependent on performance

Current trading and outlook

·    The Group continues to benefit from increased levels of client activity across the UK and Ireland. However, the Board remains mindful of the economic uncertainty and risks to the economy represented by the pandemic and sector-specific labour shortages

·    The Group is trading in line with the revised, increased market expectations (further to the July trading update) for the full year 2021

·    The Board remains confident in the Group's prospects after a period of transformation and restructuring to streamline operations in 2020, followed by the recent refinancing which materially strengthened the platform for future growth

Albert Ellis, Chief Executive Officer of Staffline, commented:

"I am delighted to report such a strong performance in the first six months of the year from Staffline, during which, we've seen a return to growth in revenue, gross profit, operating margins and underlying operating profit.

"I am extremely proud of the operational turnaround delivered by our leadership teams and employees who have transformed the business, building on the Group's well-established reputation for unrivalled excellence in service delivery.

"Throughout the Covid-19 pandemic we have continued to focus on the protection and wellbeing of our staff and customers and will continue to do so despite the easing of lockdowns in the UK and Republic of Ireland.

"Looking ahead, whilst we expect to see continued sector-specific labour shortages, we believe Staffline is well placed to capitalise on its position as the clear leader in many markets. In addition, our recent refinancing has transformed the Company's balance sheet providing a strong platform for growth in the medium term. The Group is trading in line with the revised, increased market expectations for the full year 2021."

Retail investor webcast

Management will be hosting a presentation for retail investors in relation to the Company's interim results on Wednesday, 15 September 2021 at 1:00 pm BST.

The presentation will be hosted on the Investor Meet Company ("IMC") digital platform and is open to all existing and potential shareholders. Investors can sign up to IMC for free and add to meet Staffline via: https://www.investormeetcompany.com/staffline-group-plc/register-investor

Investors who have already registered and have added to meet the Company will be automatically invited. 

Forward looking statements

Certain statements in this announcement are forward looking statements. By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. These risks, uncertainties or assumptions could adversely affect the outcome and financial effects of the plans and events described herein. Forward looking statements contained in this announcement regarding past trends or activities should not be taken as representation that such trends or activities will continue in the future. Readers should not place undue reliance on forward looking statements, which apply only as of the date of this announcement.

Important notice 

This announcement does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase any shares in the Company, nor shall it, or any part of it, or the fact of its distribution, form the basis of, or be relied on in connection with any contract or commitment or investment decisions relating thereto, nor does it constitute a recommendation regarding the shares of the Company. Past performance cannot be relied upon as a guide to future performance.

Enquiries:

Market Abuse Regulation

For the purposes of MAR, Article 2 of Commission Implementing Regulation (EU) 2016/1055 and the UK version of such implementing regulation, the person responsible for arranging for the release of this Announcement on behalf of the Company is Daniel Quint, Chief Financial Officer.

About Staffline

Providing workforce solutions

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

Recruitment GB

Staffline is a leading provider of flexible blue-collar workers, supplying c.37,000 staff per day on average to around 450 client sites, across a wide range of industries including agriculture, supermarkets, drinks, driving, food processing, logistics and manufacturing.

Recruitment Ireland 

The Recruitment Ireland business is a leading end to end solutions provider operating across 20 industries, 10 branch locations, 15 onsite customer locations, supplying c.5,000 staff per day on average, and offering RPO, MSP, temporary and permanent solutions across the island of Ireland.

PeoplePlus

PeoplePlus is a leading skills and employability business with a clear purpose to help people transform their lives, get jobs and keep jobs, and develop their careers. The division works with employers to develop workforces of the future, and with central, local and devolved governments to support their economic and social policy agendas.

Chief Executive Officer's review

Introduction

The positive trading momentum generated in H2 2020 continued in the first half of 2021, with significant improvement in revenue, gross profit and underlying operating profit delivered during the period.

Revenue for H1 2021 increased 4.7% to £450.7m (H1 2020: £430.3m), with gross profit increasing by 14.0% to £39.0m (H1 2020: £34.2m) and underlying operating profit increasing significantly to £4.6m (H1 2020: £0.1m).

This positive trend not only reflects the transformation and restructuring implemented during 2020, which resulted in a much lower cost base, but also the growth in market share across Staffline's three core divisions, as existing customers extended their arrangements and new customers were added.

Central to this, was our placing, subscription and open offer, which raised net proceeds of £46.4m alongside a refinancing of the Group's working capital facilities, transforming the Company's balance sheet and providing a strong platform for growth in the medium term.

Market

The labour market continues to adjust to the broader macro environment which has been shaped by the pandemic. Sectors providing essential services such as food distribution have seen unprecedented demand particularly during lockdown. Home delivery and logistics networks have benefitted from the shift to on-line and meal delivery services have experienced significant growth. This has created increased demand for HGV drivers at a time when the supply of labour has contracted.

The reopening of the economy has increased demand for labour in many sectors and has driven up the number of people in work. According to the latest Office for National Statistics Labour Market Data, the unemployment rate dropped to 4.7% in the three months to June, down 0.2 percentage points on the previous quarter. Data for July showed the number of job vacancies passed one million for the first time on record and online job sites are reporting record levels of job advertising. The end of the jobs furlough scheme in September should further help ease the supply constraints.

Consequently, employers have responded to their recruitment and resourcing challenges by engaging with the Group's management on a more strategic basis recognising the benefit of Staffline's scale, flexibility, geographic coverage and training capabilities.

Strategy

Given the changes we have seen in the labour market, we are confident of our sustainable growth strategy which rests on four key drivers:

·    Capitalise on market leadership - position and scale in contingent workforce management

·    Broaden the portfolio - driving growth in permanent and white-collar recruitment

·    Unlock the potential in training - return PeoplePlus to sustainable profit growth 

·    Republic of Ireland - grow market share in a highly attractive market

Pleasingly, the Group has made good headway across all of these areas, and as the broader economy further unlocks, we would anticipate this progress to accelerate.

Operational review

As our clients respond to the overall impact of the pandemic, they continue to manage their staff as their employment requirements continue to shift. Given Staffline's market position, particularly in many key sectors across the UK and Irish economies, our ability to both support and evolve our customer offering sits at the heart of our business.

Recruitment GB

The division performed well throughout H1 2021, driven by the well documented demand in the food, logistics and e-commerce sectors, in addition to new business wins providing additional margin improvement, replacing unattractive legacy contracts. As expected, worker productivity was exceptionally high during the lockdown in line with the strong demand.

Against this backdrop, well documented labour shortages have created headwinds in the Group's market leading "HGV drivers" recruitment division. The division is working closely with some of the largest employers in the market to mitigate the effects of the shortage, and we are confident the market will rebalance in the longer term through improved pay and increased investment in training.

Significant progress has been made in the Group's white-collar brands, with engineering recruiter, Omega and Scottish based Brightworks both reporting solid year on year gross profit and operating profit increases as client activity improved, particularly in permanent recruitment. The Group's recruitment process outsourcing business, Datum, has also recovered sharply as demand from its core construction sector increased.

Recruitment Ireland

Staffline Ireland reported an excellent return to profit growth in the period, supported mainly by a strong performance in Q2 2021, driven by a bounce back in permanent hiring and also benefitting from a much lower cost base despite lower levels of revenue. Good trading in its core, market leading Northern Ireland business was supported by a solid result from the Republic of Ireland despite the severity of the lockdown. Increased permanent recruitment and management actions to improve temporary margins resulted in gross margins of 10.1% compared to 9.0% in the comparative 2020 period. Tight control of the cost base was reflected in a gross profit to operating profit conversion rate of 21.4% in H1 2021 (H1 2020: 19.6%).

PeoplePlus

PeoplePlus has been transformed over the last 12 months and is now fully focused on employability and skills as the UK labour market continues to respond to the lasting impact on skills availability as a result of the pandemic. The business reported a strong bounce back to profit from a loss in the prior year particularly in employability, despite the social distancing restrictions imposed on skills centres.  In June 2021, the business announced it had secured three contracts with prime Restart suppliers representing a c. £90m revenue opportunity over four years subject to performance, commencing in the second half of this year.

Board appointment

On 28 July 2021, the Board welcomed Tom Spain on his appointment as a Non-Executive Director of the Company. Mr Spain is the Board representative of Henry Spain Investment Services Limited, currently the largest shareholder in the Company.

Outlook

Trading for the first half exceeded the Board's expectations and momentum is expected to continue into the second half. The Group is trading in line with the revised, increased market expectations (further to the July trading update) for the full year 2021. In addition, our recent refinancing has transformed the Company's balance sheet providing a strong platform for growth in the medium term.

The Board remains mindful of the economic uncertainty and risks to the economy represented by the pandemic and sector-specific labour shortages. However, we believe Staffline is well placed to capitalise on its position as the clear leader in many markets.

Albert Ellis

Chief Executive Officer

13 September 2021

Financial Review

Introduction

Trading in the first half of 2021 showed continuing momentum from last year, supported by the gradual lifting of some of the lockdown restrictions. In June 2021, an equity raise and the refinancing of the Group's debt facilities were successfully completed to ensure that the business has a stronger balance sheet to position it for future growth.

Trading performance

Total revenue for H1 2021 increased by 4.7% to £450.7m (H1 2020 restated: £430.3m).

The Group comprises three divisions: Recruitment GB, flexible blue-collar recruitment; Recruitment Ireland, generalist recruitment; and PeoplePlus, an adult skills and training provider.

Revenues in the Recruitment GB division increased by £22.2m (6.7%) to £355.0m. The increase is as a result of new contract wins, notwithstanding the strategic exit from a low margin, large customer, as well as organic growth from existing customers following the easing of some lockdown restrictions.

Revenues in the Recruitment Ireland division decreased by £(6.7)m (10.8%) to £55.2m, reflecting a broader exposure to white collar and permanent recruitment, which were harder hit than the temporary recruitment market by lockdown restrictions.

PeoplePlus revenues increased by £4.9m (13.8%) to £40.5m, primarily as a result of an excellent performance from its 'employability' division and higher levels of activity in 2021 compared to the initial lockdown in 2020.

The sales mix between the operating divisions was unchanged compared with H1 2020, with the recruitment businesses accounting for 91% of revenue (2020: restated 92%).

Overall, gross profit increased by 14.0% to £39.0m (H1 2020: £34.2m) with Group gross profit margin (to which all three divisions contributed) increasing to 8.7% (H1 2020: 7.9%).

The gross margin for Recruitment GB increased year-on-year, from 6.5% in H1 2020 to 6.8% in H1 2021, despite the increase in the National Living Wage in April 2020, from £8.21 to £8.72 per hour for over 25s. This does not impact absolute gross profit but does negatively impact the gross margin percentage achieved. This dynamic will continue with the increase in April 2021 to £8.91 per hour for over 25s. As the lockdown restrictions have eased, the contract mix has changed reducing the proportion of activity with the supermarkets, which are traditionally lower margin contracts.

The gross margin for Recruitment Ireland increased from 9.0% in H1 2020 to 10.1% in H1 2020, close to the pre-pandemic level, which was achieved by very tight margin management.  

The gross margin for PeoplePlus increased from 19.7% in H1 2020 to 23.2% in H1 2021 due to the return to normal contractual pricing following a period in which some Government contracts were supported by cost plus recovery.

Reflecting the solid performance by all three divisions in the period as well as the continued overhead cost disciplines initiated in 2020, underlying operating profit was £4.6m (H1 2020 restated: £0.1m). Total non-underlying charges before tax were £(4.0)m (H1 2020 restated: £(44.8)m) as described below. Finance charges were £(1.4)m (H1 2020 restated, underlying: £(2.1)m). These movements generated a reported loss before taxation of £(0.8)m in H1 2021 (H1 2020 restated: £(46.8)m).

The reported loss after tax on continuing activities for H1 2021 was £(0.6)m (H1 2020 restated: £(45.9)m).

Non-underlying administrative charges

Non-underlying charges before tax have decreased to £4.0m in H1 2021 (H1 2020 restated: £44.8m), as shown below.

Taxation

There is £nil tax charge for the period (H1 2020: £0.9m) due to the use of brought forward tax losses offset against chargeable profits.

Statement of financial position, cash generation and financing

The Group's total equity increased by £46.5m over the six months from 31 December 2020, following the equity fundraise in June 2021.

The movement in net debt is shown in the table below. The movement in working capital includes an increase in trade and other receivables and accrued income of £11.9m. As part of the new receivables financing agreement ("RFA"), £17.8m of previously non-recourse financed receivables were brought onto the balance sheet and included in the RFA. This increase was offset by further improvement in trade receivables collection. 

The Group ended H1 2021 with pre-IFRS16 net cash of £20.9m, compared to net debt of £(36.2)m at H1 2020. Post-IFRS16 net cash was £16.2m at H1 2021 compared to net debt of £(43.1)m at H1 2020. This turnaround is principally due to the net proceeds of the equity raise of £46.4m in June 2021,  c.£15m of timing benefits which are expected to unwind and further improvements in trading cash flow and cash collection efficiency, which have generated an additional c.£10m. The equity and debt refinancing have transformed the Company's balance sheet and repositioned the Group for the medium term.

The table below reconciles underlying EBITDA (earnings before interest, taxation, depreciation and amortisation), to operating loss.

Note: Operating profit before amortisation of intangible assets arising on business combinations and, in the six months ended 30 June 2020, goodwill impairments and other non-underlying charges.

The Group's headroom relative to available committed banking facilities as at 30 June 2021 was £87.8m (30 June 2020: £38.4m) as set out below:

Refinancing: New Credit Facilities June 2021

On 10 June 2021, the Group entered into a new Receivables Financing Agreement ("RFA") to replace the existing Group funding arrangements. The RFA contained certain requirements to be met before completion, the most significant of which was that the Company raise new equity capital of at least £40.0m. This condition was satisfied and the RFA became effective on 10 June 2021.

The key terms of the new facility, which is provided jointly by RBS Invoice Finance Limited, ABN AMRO Asset Based Finance N.V., UK Branch and Leumi ABL Limited, are set out below:

I.       Maximum receivables financing facility of £90.0m over a four-and-a-half-year term, with a one-year extension option;

II.     An Accordion option of up to an additional £15.0m, subject to lender approval;

III.    Security on all of the assets and undertakings of the Company and certain subsidiary undertakings;

IV.    Interest accruing at 2.75% over SONIA, with a margin ratchet downward to 2.00%, dependent upon the Group's leverage multiple reducing to 3.00x;

V.     A non-utilisation fee of 0.35% of the margin;

VI.    Maximum net debt (averaged over a rolling three months) to EBITDA leverage covenant commencing at 5.95x followed by a gradual reduction to 4.0x by October 2023; and

VII.  Minimum interest cover covenant of 2.25x the last twelve months EBITDA to finance charges.

The new facility enabled the cancellation of the existing facilities, comprising a Revolving Credit Facility ("RCF") of £20.0m and a Receivables Financing Facility ("RFF") of £68.2m, and also the non-recourse Receivables Purchase Facility of £25.0m.

The Group also has available a number of separate, non-recourse, Customer Financing arrangements whereby specific customer invoices are settled in advance of their normal settlement date. At 30 June 2021, the value of invoices funded under these arrangements was £39.1m (H1 2020: £23.1m).

Dividend policy

No dividends will be declared by the Company for the 2021 financial year.

Going concern

The Directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence and meet its liabilities as they fall due over the assessment period. The Directors have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group's ability to continue as a going concern for a period of at least eighteen months from when the financial statements are authorised for issue. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements.

International Financial Reporting Standards

There have been no new accounting standards or interpretations in the first half of 2021 which materially impact the Group's reported performance or financial position.

Daniel Quint

Chief Financial Officer

13 September 2021