Staffline : Interim Results 2022

2 August 2022

STAFFLINE GROUP PLC

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

UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2022

Solid performance in H1 with trading for the full year in line with market

expectations

Staffline Group PLC, the recruitment and training group, announces its unaudited results for the six months ended 30 June 2022.

Financial highlights

• • Underlying operating profit before amortisation of intangible assets arising on business combinations
  • On a Pre-IFRS16 basis, net debt was £(9.7)m at 30 June 2022 (2021: net cash £20.9m)
• Revenues marginally down due to lower hours worked in the food and online distribution sectors
• Gross profit increased by 2.3% due to increased proportion of permanent fees (up 113%) as well as reopening of higher margin sectors such as automotive and aviation
• Investment in headcount for H2 and beyond (Staffline +8%) holding back underlying operating profit in H1 2022 (-13%)
• Strong jobs market has impacted revenues and underlying operating profit in PeoplePlus' Skills and training division partially offset by increased activity with the Ministry of Justice
• Solid trading cash flows, continued tight working capital management and lower banking margin costs, helping to deliver lower finance costs and sustained balance sheet strength
• Deferred VAT relief of £46.4m now fully repaid, no further outstanding COVID-19 related liabilities
• Significant headroom of £46.7m (2021: £87.8) in banking facilities.

Key operational highlights:

• Record permanent fees of £3.2m up 113% on 2021 (2021: £1.5m)
• Proactive investment in fee-earning headcount across H1 2022 provides an expanded base from which to deliver future growth
• Demand increasing in sectors experiencing delayed recovery from lockdown, such as automotive and aviation
• New contract momentum in the period including:

• 1. Restart successfully mobilised, recognition of operating profit expected to commence in H2 2022 o Successfully implemented supply of flexible workers to BMW in May 2022, incremental revenues
     in H2 2022
     o 5-year extension of RPO contract with VINCI Construction
• Continued strong demand for labour amid reported record vacancies.

Current trading and outlook

• The Group has made a solid start to the year and continues to trade in line with expectations
• Continued strong demand for white collar recruitment across the UK
• A strong pipeline of new business opportunities and a robust balance sheet underpins confidence in the second half of 2022
• The full year outlook is subject to any adverse changes in the current macroeconomic headwinds of inflation, the associated cost of living challenge and global supply chain issues

Albert Ellis, Chief Executive Officer of Staffline, commented:

"I am pleased with the solid start Staffline has made to 2022, providing a strong base from which to deliver across the remainder of the year. This performance, achieved against the backdrop of macro-economic and geopolitical uncertainty, as well as the adverse impact of the Omicron COVID-19 wave in January 2022, further highlights the resilience of our business and the value of our scale and operational expertise.

"Our executive management team has worked hard to deliver on our growth strategies, securing new business in challenging labour markets through contract wins with BMW Group, VINCI Construction and the Ministry of Justice, which will deliver incremental revenues in H2 2022.

"In addition, we have actively invested in headcount in order to capitalise on future growth opportunities and build the capacity required to further increase our fee income organically. I am confident this will yield positive results in the second half of the year, which will also see a boost from the maiden returns from our Restart contracts.

"Management remains conscious of heightened macro and political headwinds going forward, and will seek to offset any associated impacts by protecting the Group's strong balance sheet through tight control of the cost base and continued focus on working capital management. We believe the industry-wide challenges that lie ahead present an unprecedented opportunity for Staffline, as we pursue a number of new business prospects and continue to grow our market share at the expense of sub-scale competitors."

Retail investor webcast

Management will be hosting a presentation for retail investors in relation to the Company's interim results on Tuesday, 2 August 2022 at 2:00 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 themselves to meet Staffline via: https://www.investormeetcompany.com/staffline-group-plc/register-investor

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

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.33,000 staff per day on average to around 400 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 twenty industries, ten branch locations and ten onsite customer locations, supplying c.4,500 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

I am pleased with the Group's performance across H1 2022, building on the positive momentum generated across the business in FY 2021. This, alongside the proactive investment in fee-earning headcount, which Staffline has not instigated for a number of years, and ongoing new business momentum, provides an expanded base from which to deliver future growth.

This solid H1 2022 performance was delivered against the background of a weaker than expected UK macro environment over the past six months, further highlighting the quality of both our people and operational expertise.

Revenue of £438.0m (2021: £450.7m), was slightly lower compared to the prior year due to lower hours worked in the food and distribution sectors, headwinds in Skills, and strong comparators in Q1 2021. However, the robust performance in white collar and permanent recruitment lifted gross profit by 2.3% to £39.9m (2021: £39.0m), and gross margin to 9.1% (2021: 8.7%). Underlying operating profit of £4.0m (2021: £4.6m) was held back by the investment in increasing average fee-earning headcount by c.8%, deferred recognition of revenue, and therefore operating profit, in relation to Restart contracts into H2, and one-off costs incurred during the Omicron wave of COVID-19 in January 2022.

The Group expects performance to be second half weighted, with an increase in revenues from business wins secured in H1 2022, expected returns from PeoplePlus' Restart contracts, and increased seasonal retail trading volumes in Q4. Accordingly, management remains confident that FY 2022 results will be in line with expectations.

Market

The broader macro-economic environment continues to shape the UK and Ireland labour markets as both Staffline's customers and consumers adjust to the rising cost of living. Lower levels of demand from the food and online distribution sectors have been reflected in a decline of "hours worked" in the blue collar sector. Conversely, the stronger jobs market seen across the UK has impacted the Group's skills and training division as candidates opt to take up employment rather than attend training. These rapidly evolving market dynamics underline the importance of our agile operating model and diverse customer offering.

As predicted, we are beginning to see demand returning in sectors that have experienced a delayed recovery from lockdown, such as automotive and aviation. Businesses operating within these sectors are still in a transition phase, facing both an unprecedented resurgence in demand whilst also grappling with significant supply chain challenges. Staffline continues to take advantage of these and other growing opportunities, along with investing in the Group's Permanent Recruitment and Recruitment Process Outsourcing ('RPO') operations, both of which are experiencing strong demand in the current employment climate.

According to the latest Office for National Statistics Labour Market Data, the unemployment rate dropped to 3.8% in the three months to May 2022, down 1.1 percentage points on the same period last year. The latest available data shows the number of job vacancies at 1.3m, up 50% from the same period last year, and online job sites are reporting record levels of job advertising.

Customers have responded to the labour shortages and challenging resourcing requirements by engaging with the Group's management on a more strategic basis, recognising the benefit of Staffline's scale and geographic reach, as well as the comprehensive training capabilities offered by the Group and the enhanced flexibility of temporary workforce solutions.

Strategy

Capitalising on the Group's position as a market leader lies at the heart of Staffline's business strategy. As we move into H2 2022, we will seek to further grow our market share in the white collar recruitment market, including through the expansion of our permanent recruitment offering, which ultimately generates higher margin returns and stronger cash generation, whilst retaining a core focus on strengthening our existing scale and reach in blue collar sectors.

The recent investment in fee-earning headcount, which saw c.£1m invested across the UK in H1 2022, is now generating financial returns for the Group, and enabled Recruitment GB and Ireland to expand its operational delivery and local branch network capacity. In addition, PeoplePlus has implemented a number of initiatives to unlock the potential of providing additional pools of labour and training to bridge the skills gaps and address the labour shortage.

Staffline continues to make excellent progress in all its target areas, with material new business wins in recruitment, permanent fees up 113% to £3.2m (2021: £1.5m), investment in additional headcount across all divisions, and a new Republic of Ireland office coming on stream in September 2022, to further expand the Group's geographical footprint in an increasingly attractive market.

Operational review

Recruitment

The focus on white collar recruitment across the Group has yielded a doubling of permanent recruitment fees for the period compared to last year. In particular, the Irish business has seen strong growth in permanent fees including its first executive level placements. We also saw a series of improvements in the Group's fulfilment data in the second quarter, which was especially encouraging, given the continued labour shortages. Finally, the Group's RPO business has reported its strongest results since being acquired, with a strong pipeline of new opportunities.

Recruitment GB

Revenue of £345.2m was 2.8% lower in the first half. This was due in part to lower hours worked on client sites as the macro-economic environment weakened, as well as the inclusion in 2021 of the remaining revenues relating to a since exited low margin contract. Gross profit increased by 2.5% with a 111% increase in permanent fees to £1.9m (2021: £0.9m) on the back of sustained strong demand for white collar workers. Investment in headcount of c.£1m in the first half, targeting an 8% increase to facilitate further growth held back operating profit compared to the previous year. First half operating profit was also materially impacted by the Omicron wave of COVID-19, as absences increased, and the one-off cost of sick pay and absence was £0.3m higher than in the same period in 2021.

Looking forward, Recruitment GB will benefit from a healthy new business pipeline, including its partnership with BMW to supply flexible operational workers and specialists for its manufacturing sites in England, first implemented in May, as well as its RPO contract extension with VINCI Construction UK. These contracts, combined with the investment in headcount to expand the branch network and white collar business, will deliver incremental revenues into the second half.