Staffline : Trading Update

RNS Number : 2392X

Staffline Group PLC

18 December 2019

18 December 2019

STAFFLINE GROUP PLC

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

Trading Update

Staffline, the recruitment and training group, provides the following update on Group trading and outlook.

Recruitment

In the Recruitment division, trading performance in Q4 has been below the Board's expecta ons, with lower than an cipated demand from end customers. During November, customer demand was down approximately 16% from the prior year which the Board believes reflects high levels of consumer uncertainty across the UK. Whilst trading in December has improved, trading performance for the month is also an cipated to be below the Board's expecta ons. Despite this, Staffline continues to make strong operational progress in the development of the Recruitment division:

• Industry leading candidate a rac on pla orm means that Staffline now has access to c. 1m live candidates on its database compared to 230,000 this time last year;
• Worker engagement is at record levels leading to significantly reduced attrition;
• Further automation of the recruitment process in 2020 is planned, resulting in further improvements to customer service and a significant reduction in operating costs.

Notwithstanding current market headwinds, the Board believes the Company's market-leading approach to worker engagement, its digitally enabled candidate a rac on and its scale within the industry will result in increasing differentiation and underpins the Company's future growth.

Furthermore, Staffline looks forward to a levelling of the compe ve playing field an cipated through the introduc on of a single labour market enforcement body. In par cular, the Board expects the unethical use of umbrella companies to be be er regulated. The use of umbrella companies is widespread across our industry and generally disadvantages workers by exploiting legislative loopholes.

PeoplePlus

In PeoplePlus, the transi on from a Work Programme provider to the UK's leading skills and training company is complete. Despite significant growth within the year, Q4 performance is expected to be below the Board's expecta ons, principally due to the impact of the general election purdah on short term procurement opportunities.

However, following a first half of transi on and mul ple new contract implementa ons, the second half has evidenced the poten al of the business with opera ng profit in each of October and November reaching £1 million. PeoplePlus has built a significant pla orm for future growth and with the majority of 2020 revenues already contracted, the Company maintains a positive outlook for PeoplePlus in 2020 under its new operating model.

Prior Year Restatement

Following the accoun ng review completed in the first half of the year, the Board has con nued projects to improve Staffline's internal controls. This has included a rigorous internal review process which has iden fied accoun ng errors rela ng to the prepara on of the Company's 2018 annual results. These errors primarily relate to costs which were not correctly booked. The Board currently believes the associated impact was an overstatement of 2018 profit of approximately £4 million. The poten al for restatement is expected to be limited to the year ending 31 December 2018. The precise impact remains subject to audit.

Directorate change

The Company has made a separate announcement today regarding the appointment of Daniel Quint as Interim Chief Financial Officer, replacing Mike Watts who has left the Group with immediate effect.

Group Outlook

Given the challenges to trading in Q4, the Board now expects the Group to deliver full year adjusted opera ng profit (being profits before interest, tax and non-underlying charges) for the period ending 31st December 2019 of approximately £10 to 12 million.

The Board expects year end net debt to be approximately £50 to £55 million, in line with current market expecta ons. Staffline maintains a construc ve rela onship with its lenders and consequently the Board does not an cipate any covenant issues over the year end. Furthermore, the Company is considering certain strategic op ons which may significantly reduce net debt during H1 2020.

Notwithstanding the current short-term trading challenges, Staffline remains a cash genera ve business, is one of the most financially robust operators within its immediate peer group and con nues to benefit from considerable liquidity headroom.