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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Staffline Group Plc | LSE:STAF | London | Ordinary Share | GB00B040L800 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.50 | -1.64% | 30.00 | 29.50 | 30.90 | 30.00 | 30.00 | 30.00 | 54,965 | 12:43:17 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Management Consulting Svcs | 938.2M | -11M | -0.0664 | -4.52 | 49.73M |
From Apr 2019 to Apr 2024
TIDMSTAF
RNS Number : 4513R
Staffline Group PLC
30 June 2020
30 June 2020
STAFFLINE GROUP PLC
("Staffline", the "Company" or the "Group")
RESULTS FOR THE YEARED 31 DECEMBER 2019
Staffline Group plc, the recruitment and training group, today announces its audited preliminary results for the year ended 31 December 2019.
Financial Highlights
-- Revenue decreased (3.9)% to GBP1,076.7m (2018 restated: GBP1,120.9m) -- Underlying* operating loss of GBP(0.8)m (2018 restated: GBP32.8m profit) -- Reported operating loss of GBP(39.9)m (2018 restated: GBP(14.7)m) -- Reported loss before tax of GBP(48.1)m (2018 restated: GBP(17.8)m) -- On a pre-IFRS 16 basis net borrowings reduced by GBP3.5m to GBP59.5m (2018: GBP63.0m) -- On a post-IFRS 16 basis net borrowings were GBP67.9m
Operational Highlights
-- The Group's credit facilities have been restructured in June 2020, post period-end
-- Group leadership, finance and main Board strengthened post year-end with the following appointments:
o Ian Lawson as Executive Chairman in April 2020
o Daniel Quint, Interim Chief Financial Officer, appointed to the Board in May 2020
o Albert Ellis as Non-executive Director in March 2020 and as Chair of the Audit Committee in April 2020
o Richard Thomson as Senior Non-executive Director and Chair of the Remuneration Committee in April 2020
-- Implementation of corporate governance improvements following certain control failures and prior period reporting issues
Current Trading and Outlook
-- The impact of COVID-19 has been mixed across the Group with surges of demand reported in key food distribution and production supply chains, offset by declines in demand from sectors where the Government's shutdown was most severe such as manufacturing, retail and classroom-based training programmes
-- The Recruitment divisions have experienced significant variance between customer sectors
o Strong response to the unprecedented surge in food sector demand utilising web-based platforms to connect displaced workers with vital roles required in the food supply chain, where demand continues to be strong
o Conversely, demand from other sectors such as retail, automotive and manufacturing diminished considerably
o Since the easing of lockdown, the Group has benefitted from a gradual recovery in demand for labour in non-food sectors including retail and manufacturing in line with our expectations
-- PeoplePlus has continued to operate the majority of its services adhering to isolation measures
o Most funding support provided has been on a cost only basis
o Whilst business intake in 2020 has weakened, it is anticipated that the Government will launch new funding for training and retraining schemes, which PeoplePlus is well-positioned to benefit from
-- The Board remains cautiously optimistic that each of the three operating divisions will achieve a positive result in 2020 on an underlying operating profit basis
Ian Lawson, Executive Chairman of Staffline, commented:
"2019 was a challenging year for the Group during which time Staffline faced a number of significant issues. Our new management team are now ensuring that the appropriate measures of strong corporate governance and controls are being put in place. Clearly in the current year, we are operating within an unprecedented macroeconomic climate as a result of the COVID-19 pandemic, however, Staffline's people have risen to this challenge and maintained an outstanding level of business continuity, enabling us to successfully support our blue-chip customer base.
"Our strong operational base and leading positions in many of the markets in which we operate sit firmly at the heart of our strategy to create the most reliable, flexible and integrated workforce in the UK, delivering both opportunities and jobs, training and re-skilling, and in-turn to deliver value to all stakeholders."
* Note: Underlying results exclude amortisation of intangible assets arising on business combinations, exceptional reorganisation, legal and refinancing costs, exceptional transaction costs, exceptional National Minimum Wage remediation and financial penalties, revised audit scope and increased audit fees, employee dispute settlements, goodwill impairment and the non-cash charge/credit for share-based payment costs.
Note: Th e results for the year ended 31 December 2019 have been prepared in accordance with International Financial Reporting Standards and reflect IFRS 16 'Leases', effective for financial periods beginning on or after 1 January 2019. The Group has adopted the modified retrospective approach and therefore there has been no restatement of the comparatives for the 2018 reporting period. The impact on the financial statements is summarised in the Financial Review. There is no overall impact on the Group's cash and cash equivalents.
Note: EBITDA represents Earnings Before Interest, Taxation, Depreciation and Amortisation.
Note: Net debt includes transaction costs of GBPnil (2018:GBP0.8m).
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 di er materially from those expressed or implied by the forward-looking statements. These risks, uncertainties or assumptions could adversely a ect the outcome and nancial e ects 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 o er or invitation to sell, or any solicitation of any o er 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.
For further information, please contact:
Staffline Group plc via Vigo Communications www.stafflinegroupplc.co.uk Ian Lawson, Executive Chairman Daniel Quint, Interim Chief Financial Officer Liberum NOMAD and Broker www.liberum.com Bidhi Bhoma / Joshua Hughes 020 3100 2222 Vigo Communications Financial PR 020 7390 0230 www.vigocomms.com staffline@vigocomms.com Jeremy Garcia / Antonia Pollock / Charlie Neish
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 Ian Lawson, Executive Chairman.
About Staffline - Recruitment, Training and Support
Enabling the Future of Work(TM)
Staffline is the UK's market leading Recruitment and Training group. It has three divisions:
Recruitment GB
Staffline is the UK's leading provider of flexible blue-collar workers, supplying approximately 40,000 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 and offering RPO, MSP, temporary and permanent solutions across the island of Ireland.
PeoplePlus Division
Staffline is the leading adult skills and training provider in the UK, delivering apprenticeships, adult education, prison education and skills-based employability programmes across the country.
Executive Chairman's Statement
Introduction
I joined the Board on 25 April 2020 as Executive Chairman following a 15-month period in which the Group had experienced a number of significant operational issues. These operational issues created uncertainty particularly in respect of ensuring the Group had sufficient funding in-place, all of which was compounded by the COVID-19 pandemic and the varying impact on demand across the Group.
Over the last few months, we have made significant progress in creating a platform from which to future-proof the Group. Most significantly, the Group has successfully refinanced its credit facilities, which will provide support to our ongoing business activities. In addition, Staffline is benefitting from HMRC's VAT deferral, which improves the Group's liquidity through to the end of 2020, and has utilised the Government's furlough scheme where relevant, with respect to certain of the Group' permanent employees, as well as temporary workers.
The Group overall is being reshaped to ensure that it is sufficiently resilient with improvements being implemented in all key areas: corporate governance, financial reporting processes, management information channels and cross-selling and communication across all divisions. An Executive Management Team has been established which includes myself, Daniel Quint, Interim Group CFO, and our three highly experienced divisional Managing Directors. We are also, for the first time, reporting across three distinct business divisions: Recruitment GB, led by Frank Atkinson; Recruitment Ireland, led by Tina McKenzie; and PeoplePlus, led by Simon Rouse.
There is a real passion and commitment across the Group and our people believe we have a great opportunity to use the strengths and talents we have by working more closely together. This has been particularly evident during the current COVID-19 pandemic with the divisions coming together to create "Feed the Nation," a nationwide scheme supported by clients and the Government. This was when as a country, we needed, more than ever, to come together to keep essential services running and provide support for hard working employees who are doing everything they can to support customers during these challenging times. There was a marked increase in demand in the food sector and we responded well to the sudden and unpredicted surge in demand, utilising the size of the Company's database, geographic reach and investment in digital worker engagement.
The Group's near-term strategy is to create a sustainable business that can benefit from both its existing resources and talent, as well as capitalise on the significant opportunity that exists within our target markets. The new Board has set out the following near-term priorities to underpin this strategy, which are:
1) Operational excellence - to improve the financial position of the Group through strengthening of the balance sheet, maximising profitability, reducing debt, increasing cash generation, enhancing reporting processes and streamlining and sharing services across the Group
2) Optimised service delivery - better understanding of our customers' objectives and securing opportunities with new customers in order to increase market share in our key quality sectors whilst adhering to high standards of compliance
3) Leverage our brand - unify our existing brands within the Recruitment divisions under 'Staffline,' build on the strength of the PeoplePlus brand in its chosen markets to leverage our brand equity, whilst driving synergies and opportunities across our Recruitment and PeoplePlus businesses to ultimately increase market share
4) Develop and cultivate our talent - bring together our people across the divisions by reducing organisational silos, and leverage the best in our people's skills and experience across the Group
An example of this strategy in action, is the recent rebranding of Grafton Recruitment, the Company's Northern Ireland recruitment business, under the 'Staffline' brand, as we focus on unifying our operating divisions in order to generate further opportunities.
Operational review
The Group experienced challenging trading conditions across all divisions in 2019. In Recruitment, customer confidence was impacted by the delay to the publication of the 2018 full year results, together with a heightened level of uncertainty surrounding Brexit. In the second half, extremely weak consumer confidence impacted our end customers which fed through to demand for our services. Meanwhile, throughout the year, PeoplePlus was undergoing fundamental reorganisation and transition, heavily impacting the trading performance. Group revenue declined by (3.9)% to GBP1,076.7m (2018 restated: GBP1,120.9m), with the decline being partially offset by a full year's contribution from the acquisitions made in 2018.
Notwithstanding the extended audit, the Board has continued with detailed reviews to further improve the Group's internal controls. These reviews identified accounting errors relating to the preparation of the 2018 annual results, amounting to a reduction to the 2018 opening reserves position of GBP(0.9)m and a reduction of GBP(7.5)m to the 2018 reported profit after tax.
In order to strengthen the Group's balance sheet, in July 2019, we completed an equity capital raise which delivered net proceeds of GBP38.0m, of which GBP15.1m was allocated to settling historical National Minimum Wage liabilities. In June 2020, we agreed with our lenders a revised financing structure in respect of our main banking facilities, as described in the Financial Review.
Recruitment
In our Recruitment businesses, progress was made in 2019 against our digital transformation strategy, which has a number of key objectives, which are to:
-- Implement further automation of the recruitment journey, removing low value, high effort activities to free up our talent
-- Drive performance, to reduce operating costs, further improve our customer service and worker engagement
-- Extend our pool of candidates from our industry leading database of c.900,000 candidates, to maintain unrivalled access to the labour market
-- Focus on commercial upsides and new business wins where our automation is valued as a premium offering
The Group continues to promote digital engagement and will, over time, further differentiate our service offering. However, in the short term, the continued shortfall in industry regulation continues to provide competitors with the opportunity to under-price in the market. In particular, the widespread exploitation across our industry of legislative loopholes. We welcome the Government's announcement regarding the establishment of a Single Enforcement Agency to address these issues and would encourage it to accelerate this initiative. We anticipate that Staffline, which has re-engineered its operating model and refreshed its Board and management, would significantly benefit from the levelling of the competitive playing field.
Our Recruitment Ireland business continues to perform well, with levels of engagement continuing to be strong and an average client relationship of 5-10 years. Our Ireland division offers a 360deg recruitment model including a high street branch network, specialist recruitment focusing on high-end sectors such as banking and finance, on-site solutions, RPO and HR consultancy. The business has over 1,000 active clients providing workers for the largest employer in Northern Ireland through to SME's.
PeoplePlus
2019 was a year during which the PeoplePlus business was entirely re-invented, closing down the Work Programme, and transforming into the UK's market-leading adult skills and training company, with prime positions in multiple sectors.
Key ongoing growth priorities include to:
-- Leverage our market-leading people, technology and content capabilities to help "Skill the Nation" as part of the UK national recovery and ongoing productivity challenge
-- Maintain our tight bid disciplines to secure sustainable business growth and enable us to further diversify our revenue mix to drive high-quality earnings
-- Continue to improve the efficiency of the operating platform, with increased use of automation across both front and back office operations
-- Build on our transformed digital operating model in Apprenticeships to deliver a profitable, high-quality learner experience focused on our chosen sectors
Significant re-organisation costs were incurred in the transition of PeoplePlus's operating model. However, the new PeoplePlus is formed of multiple service contracts across a number of sectors, with far less reliance on central government funding. Overall, we believe that PeoplePlus now has the characteristics of a business that will enjoy far higher quality of earnings and longevity.
Current trading
As a result of the rapid development of the COVID-19 pandemic, the Recruitment businesses experienced significant variance between sectors. There was an unprecedented increase in demand in the food and food supply chain sector, with a record 87,000 digital applications submitted through the www.staffline.co.uk and www.feedthenation.co.uk gateways in the month of March 2020, over 2.5 times that of February 2020.
Conversely, demand from other sectors such as retail, automotive and manufacturing declined considerably with the Group's limited exposure to professional recruitment also impacted. On a net basis, despite food sector customers representing approximately 56% of our client base, the growth in demand was not material enough to mitigate the temporary shutdown of the majority of other clients in non-food sectors. The demand in the food sector is now normalising and the relaxation of lockdown measures means additional sectors such as retail and manufacturing are beginning to re-open. However, it is too early to quantify what levels of demand Staffline will see from these industries in the short-term.
In PeoplePlus, whilst 2019 was a year of transition, 2020 was planned as a year of stabilisation as new contracts won in the previous year developed into maturity. With the COVID-19 pandemic, well-developed resilience plans and digital operating models, meant that we could continue to operate the majority of our services. However, loss of classroom delivery, and funder positions moving towards providing cost support impacted certain areas. The in-year new business intake has also weakened. Mitigating actions have been put in place to support management's continued drive to clear profitability notwithstanding the wider market disruption. In addition, it is anticipated that in light of the increase in unemployment as a result of COVID-19, that the Government will launch a round of funding for training and retraining schemes, which PeoplePlus, as one of the UK's leading training providers, is well-positioned to benefit from.
Across all three divisions cost saving initiatives, begun in the second half of 2019, have been significantly expanded in light of the challenging trading environment. Additionally, Group cost sharing initiatives are being explored to further reduce the overall cost base.
Going concern
The financial statements have been prepared on a going concern basis. The Directors have reviewed this basis and made full disclosure in note 3, concluding that there is a material uncertainty which may cast significant doubt upon the Group's and the Company's ability to continue as a going concern and that, therefore, the Group and Company may be unable to realise their assets and discharge their liabilities in the normal course of business. Nevertheless, after engaging in dialogue with key stakeholders and considering the uncertainties described in note 3, as well as the mitigating actions available to the Group as described in note 3, the Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future.
Annual General Meeting
In light of the COVID-19 pandemic, we note the guidance from the FRC and BEIS regarding the timing of AGMs and grace periods expected to be given by retrospective legislation. The Company will hold its AGM after the usual six-month window, but as soon as reasonably practicable following the publication of the Annual Report, which is now expected to be published and sent to shareholders in July.
Outlook
The current macroenvironment is dominated by the global COVID-19 pandemic and I am pleased to report that all our facilities, where open, currently remain operational in line with Government advice. Whilst there has been an inevitable reduction in volumes in certain sectors, we have taken measures to mitigate the effect of these. Our priority is the health, safety and wellbeing of our employees, suppliers and customers. We have taken a number of actions, in line with government guidance, to facilitate this and continue to monitor the situation to ensure we are employing best practice.
The ultimate impact of the COVID-19 pandemic on the economy and Staffline is uncertain, and the Board does not underestimate the operational and macroeconomic challenges that lie ahead for the Company, so therefore the Company is not making a forecast for 2020. However, we take assurance from having well established, market-leading businesses with a committed workforce, and we are appreciative of the efforts of all the Group's lenders who have helped deliver the refinancing and provide a platform that gives us confidence we can navigate this uncertainty.
Ian Lawson
Executive Chairman
29 June 2020
Financial Review
Introduction
2019 was a challenging year for the Group, with weak consumer confidence affecting the recruitment businesses and the PeoplePlus division undergoing fundamental transformation following the Work Programme wind-down. Total revenue for the year decreased by (3.9)% to GBP1,076.7m (2018 restated: GBP1,120.9m).
The Group is split into three divisions and will be reported as such from the current year: Recruitment GB, flexible blue-collar recruitment; Recruitment Ireland, generalist recruitment; and PeoplePlus, an adult skills and training provider.
Hot Features
Premium
Recruitment Recruitment Group Total
Recruitment Recruitment Group Total GB Ireland PeoplePlus Costs Group
GB Ireland PeoplePlus Costs Group Restated Restated Restated Restated Restated
2019 2019 2019 2019 2019 2018 2018 2018 2018 2018
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ----------- ----------- ---------- ------ ------- ----------- ----------- ---------- --------- --------
Revenue 841.1 147.7 87.9 - 1,076.7 908.1 105.3 107.5 - 1,120.9
Gross profit 56.6 15.6 14.3 - 86.5 65.9 10.5 40.4 - 116.8
Segment
underlying
operating
profit/(loss) 4.5 4.3 (7.1) (2.5) (0.8) 16.3 4.1 14.8 (2.4) 32.8
-------------- ----------- ----------- ---------- ------ ------- ----------- ----------- ---------- --------- --------
Revenues in our Recruitment GB division declined by GBP(67.0)m or (7.4)%. Customer confidence was impacted by the delay to the publication of the 2018 full year results in the first half of 2019, as well as the impact of the uncertainty around the first Brexit deadline of 31 March 2019. In the second half, ongoing uncertainty surrounding Brexit continued to impact the business with lower than anticipated demand from end consumers. When striving for certainty, customers increased their permanent staff at the expense of their temporary workforce. The typical peak trading months in Q4 included the second Brexit deadline of 31 October 2019 as well as the general election on 12 December 2019. Both of these events caused further economic and political uncertainty, contributing to the weakness experienced in trading. Q4 2019 hours worked were 17.4 million compared to 20.8 million in 2018, a (16)% decline. Revenue generated from temporary recruitment accounted for 99% of total revenue compared to 1% from permanent recruitment. Gross profit generated from temporary recruitment accounted for 94% of the total, with 6% of gross profit generated from permanent recruitment.
Revenues in our Recruitment Ireland division increased by GBP42.4m or 40.3% due to the full year contribution from Grafton Recruitment, acquired in July 2018. Had Grafton Recruitment been owned for the whole of the 2018 comparative period, total Recruitment Ireland revenues would have been broadly flat year-on-year. The political and economic uncertainty related to Brexit, and the general election referred to above, had specific impact on Recruitment Ireland in the context of the Brexit issues relating to the Irish border, which became a significant factor in the Brexit negotiations. Revenue generated from temporary recruitment accounted for 99% of total revenue compared to 1% from permanent recruitment. Gross profit generated from temporary recruitment accounted for 87% of the total, with 13% of gross profit generated from permanent recruitment.
PeoplePlus revenues decreased by GBP(19.6)m or (18.2)% with the fundamental transformation of the business. The wind-down of the Work Programme reduced revenue by GBP(27.5)m. This was partly offset by revenue growth in other sectors, principally in Justice, which saw revenue growth of GBP5.8m, and in Apprenticeships, with revenue growth of GBP4.3m.
The sales mix between the operating divisions was broadly unchanged over the year, with the recruitment businesses accounting for 92% of 2019 revenue (2018 restated: 90%).
Overall gross profit decreased by (25.9)% to GBP86.5m (2018 restated: GBP116.8m) with gross profit margins reducing to 8.0% (2018 restated: 10.4%). This margin reduction is primarily a result of the lower gross profit margins which are achieved under the new PeoplePlus operating model. PeoplePlus achieved a gross margin of 16.3% in 2019, which compares to 37.6% in 2018, largely due to the Work Programme contract. The gross margin for Recruitment GB decreased to 6.7% (2018 restated: 7.3%). The increase in the National Minimum Wage in April 2019, from GBP7.83 to GBP8.21 per hour for over 25s, does not impact absolute gross profit but does negatively impact the gross margin percentage achieved and this dynamic will continue with the increase in April 2020 to GBP8.72 per hour for over 25s. The gross margin for Recruitment Ireland increased slightly to 10.6% (2018 restated: 10.0%) driven by the division's decision not to bid for lower margin opportunities.
Reported loss before taxation was GBP(48.1)m in 2019 (2018 restated: GBP(17.8)m). Reflecting the challenges faced in the year, underlying operating loss was GBP(0.8)m (2018 restated: GBP32.8m profit). Total non-underlying charges before tax were GBP42.3m (2018 restated: GBP47.5m) as described below. Finance charges were GBP8.2m (2018 restated: GBP3.1m). This included GBP3.2m (2018: GBPnil) of non-underlying finance charges relating to the accounting for the June 2019 refinancing of the credit facilities, also described below.
The underlying loss before tax for 2019 was GBP(5.8)m (2018 restated: GBP29.7m profit). Underlying (loss) / profit before taxation as a percentage of revenue fell to (0.5)% (2018 restated: 2.6%). The reported loss after tax for 2019 was GBP(44.0)m (2018 restated: GBP(16.0)m).
Non-underlying administrative charges
In the reporting of its financial performance, the Group uses certain measures that are not defined under IFRS, the Generally Accepted Accounting Principles ("GAAP") under which the Group reports. The Directors believe that these non-GAAP measures assist with the understanding of the performance of the business. These non-GAAP measures are not a substitute for, or superior to, any IFRS measures of performance but they have been included as a means of comparing performance year-on-year.
Non-underlying items of income or expenditure are items that are non-recurring or of a particular size or nature such that they require separate identification. Non-underlying items are included in total reported results but are excluded from underlying results. These items can vary significantly from year to year and therefore create volatility in reported earnings which does not reflect the Group's underlying performance. It should be noted that whilst the amortisation of intangible assets arising on business combinations has been added back, the revenue from those acquisitions has not been eliminated.
Non-underlying charges before tax have decreased to GBP42.3m in 2019 (2018 restated: GBP47.5m) as shown below. They include exceptional restructuring costs in 2019 of GBP1.3m relating to the reorganisation of Recruitment GB into a geographically focussed operating structure, GBP1.0m of legal investigation professional fees for the independent investigation conducted by Osborne Clarke LLP, a release of GBP0.7m reflecting the net impact of increased National Minimum Wage ("NMW") remediation costs, reduced financial penalties and related professional fees, revised audit scope and increased audit fees of GBP0.8m, transaction costs of GBP0.9m related to the Group exploring strategic options, costs of GBP1.4m relating to the settlement of a dispute with an ex-employee regarding share incentives payable, legal costs of GBP1.0m in respect of a historic claim against A4E India, refinancing costs totalling GBP3.2m (including expensing old transaction costs of GBP0.6m, the June 2019 amendment fee of GBP1.2m and the recognition of a future exit fee of GBP1.4m as required by IFRS9 in relation to the new financing package as entered into in June 2019), a GBP10.9m charge for the amortisation of intangible assets arising on business combinations, a GBP22.3m goodwill impairment charge, and a share-based payment charge of GBP0.2m.
The charge in the year for amortisation of intangible assets arising on business combinations relates principally to the following acquisitions: the A4e business (GBP1.4m charge: asset fully amortised), Vital Recruitment (charge GBP3.2m: asset will be fully amortised by February 2023), Milestone (GBP1.0m charge: asset will be fully amortised by September 2020) , Passionate about People (charge GBP2.3m: asset will be fully amortised by October 2023), Grafton (GBP1.3m: asset will be fully amortised by June 2023), Brightwork (charge GBP0.7m: asset will be fully amortised by April 2022).
2019 2018 restated
Non-underlying charges GBPm GBPm
------------------------------------------------------------- ------ -------------
Reorganisation costs 1.3 10.6
Impairment of intangible fixed assets (reorganisation
related) - 2.5
Impairment of tangible fixed assets (reorganisation related) - 1.5
Legal investigation professional fees 1.0 -
NMW remediation and financial penalties (0.7) 15.9
Revised audit scope and increased audit fees 0.8 2.1
Transaction costs - business acquisitions and strategic
options 0.9 1.9
Employee dispute settlement 1.4 -
Legal costs 1.0 -
Finance costs - refinancing arrangement fees and exit
fees 3.2 -
Amortisation of intangible assets arising on business
combinations 10.9 11.8
Goodwill impairment 22.3 -
Share-based payment charges (equity and cash-settled) 0.2 1.2
------------------------------------------------------------- ------ -------------
Total non-underlying charges before tax 42.3 47.5
------------------------------------------------------------- ------ -------------
Taxation
The total tax credit for the year of GBP4.1m (2018: GBP1.8m), which amounts to 8.5% (2018: 10.1%) of the loss for the year, relates principally to the recovery of UK tax losses in previous years and on the movement of deferred tax balances. The Group has no current Corporation Tax liability in respect of either the current or prior years and as a result is anticipating a refund of amounts that were paid on account. An element of losses incurred during 2018 will be set against taxed profits in previous years, which will also result in a refund. Remaining tax losses carried forward in the Recruitment GB and PeoplePlus divisions have not been recognised as a deferred tax asset.
The amortisation charge relating to intangible assets arising on business combinations is not deductible under UK corporation tax and is therefore added back to taxable profits. A deferred tax liability is recognised in respect of consolidated intangible assets. This liability is reduced each year in line with the amortisation charge, giving rise to a deferred tax credit each year. No deferred tax is recognised on JSOP charges. An element of acquisition-related expenses and HMRC settlement costs incurred in 2018 were also treated as non-deductible.
Key performance indicators
The Group monitors a number of performance indicators: 2019 2018 restated ---------------------------------------------------------- ----------- ------------- Revenue GBP1,076.7m GBP1,120.9m Year on year total revenue (decline) / growth (3.9)% 17.0% Gross profit margin as a % of revenue 8.0% 10.4% Recruitment GB gross profit GBP56.6m GBP65.9m Recruitment GB gross profit margin as a % of revenue 6.7% 7.3% Recruitment Ireland gross profit GBP15.6m GBP10.5m Recruitment Ireland gross profit margin as a % of revenue 10.6% 10.0% PeoplePlus gross profit GBP14.3m GBP40.4m PeoplePlus gross profit margin as a % of revenue 16.3% 37.6% Reported (loss) before tax GBP(48.1)m GBP(17.8)m Underlying (loss) / profit before tax GBP(5.8)m GBP29.7m Underlying (loss) / profit before tax as a % of revenue (0.5)% 2.6% Pre-IFRS16 net debt including unamortised transaction costs GBP59.5m GBP63.0m Post-IFRS16 net debt including unamortised transaction costs GBP67.9m GBP63.0m Hours worked by temporary workers in Recruitment GB 68.6m 73.0m Hours worked by temporary workers in Recruitment Ireland 9.4m 6.7m
Earnings per share
Statutory basic and diluted loss per share were both (96.3)p (2018 restated: both (61.2)p).
The weighted average number of shares (basic) has been increased by 20,642,000 (2018: increased by 546,000) shares to take account of the effect of the placing and open offer in July 2019 whereby 40,986,097 new ordinary shares were issued.
Removing the non-underlying charges, and their respective taxation impacts, results in underlying basic and diluted loss per share both being (9.0)p (2018 restated: both 88.3p).
Prior year restatements and review of internal controls
Following the extended 2018 audit, the Board has continued with detailed reviews to further improve the Group's internal controls. As previously announced, these reviews identified accounting errors relating to the preparation of the 2018 annual results. The 2017 statement of financial position, being the 2018 opening reserves, and the 2018 income statement, 2018 statement of financial position and 2018 cash flow statement (presented as comparatives in the 2019 Financial Statements) contain prior year adjustments. Overall, the 2018 opening reserves position has been decreased by GBP(0.9)m and the total 2018 income statement impact was a GBP(7.5)m reduction in profit after tax. See note 3 for further details.
The Recruitment GB division acquired several businesses in 2018 and within a short timeframe endeavoured to integrate the acquired finance functions, whilst at the same time changing some critical IT systems covering operations, payroll and finance. This, combined with high staff turnover, resulted in weaknesses in the balance sheet control environment, which have now been rectified.
After the end of the reporting period, management's review of internal controls identified a material misstatement within reported accrued income and costs for the year ended 31 December 2019, which contributed towards profit guidance for 2019 being reduced earlier this year. On further investigation, this material misstatement was traced to the deliberate manual manipulation of internal reports which were used in the accrued income and accrued cost accounting process.
While the impact was relatively small in the context of Group revenue, on identification of the issue, the Board was immediately notified and an investigation took place covering the control environment and substantiation of accrued income and costs. Control improvements have now been implemented, including additional segregation of duties. The individual involved with the issue is no longer employed by the Group. Importantly, no external funding rules were broken as a result of this issue. It has no impact on the Board's outlook and the incident has now been fully resolved.
Statement of financial position, cash generation and financing
The Group's total equity decreased by GBP(6.8)m over the year from the 2018 restated position. This is as a result of the total comprehensive loss for the year of GBP(44.7)m offset by the equity raise in July 2019 which delivered net proceeds of GBP38.0m. The transition to IFRS 16 on 1 January 2019 also decreased equity by GBP(0.1)m.
The movement in net debt is shown in the table below. The movement in working capital includes a decrease in trade and other receivables of GBP24.6m, primarily due to the decline in trading, and a decrease in trade and other payables and provisions of GBP23.8m, primarily due to a reduction in VAT liabilities due to weak trading and payment timing.
Movement in net debt (including unamortised transaction 2019 2018 restated fees) GBPm GBPm ----------------------------------------------------------- ------ ------------- Opening net debt (pre IFRS16) (63.0) (16.5) Underlying EBITDA (pre IFRS16) 3.3 37.6 Non-underlying items (5.9) (31.7) Movements in working capital 1.0 14.3 Taxation and interest paid, and movement in capitalisation transaction fees (7.9) (8.6) Capital investment (net of disposals) (5.1) (6.4) Cash flows relating to acquisitions (7.2) (49.6) Net proceeds from equity issue 38.0 - Payments in to restricted funds for NMW (12.7) - Dividends paid - (7.1) Net proceeds from JSOP - 5.0 ----------------------------------------------------------- ------ ------------- Closing net debt (pre IFRS16) (59.5) (63.0) IFRS16 lease liabilities (8.4) - ----------------------------------------------------------- ------ ------------- Closing net debt (post IFRS16) (67.9) (63.0) ----------------------------------------------------------- ------ -------------
The Group ended the year with pre-IFRS16 net debt of GBP59.5m compared to the GBP63.0m at the end of 2018 (including unamortised transaction costs). Post-IFRS16 net debt was GBP67.9m at 31 December 2019. The unamortised transaction costs were written off in the year, at the time of the 2019 refinancing.
The table below reconciles underlying EBITDA (e arnings before interest, taxation, depreciation and amortisation) , used in the net debt analysis above, to operating loss.
2019 2018 restated
Reconciliation of operating loss to EBITDA GBPm GBPm
------------------------------------------- ------ -------------
Operating loss (39.9) (14.7)
Non-underlying costs 39.1 47.5
------------------------------------------- ------ -------------
Underlying operating (loss) / profit (0.8) 32.8
------------------------------------------- ------ -------------
Depreciation 7.3 4.8
------------------------------------------- ------ -------------
Underlying EBITDA 6.5 37.6
------------------------------------------- ------ -------------
Principal repayment of lease liabilities (3.2) -
------------------------------------------- ------ -------------
Underlying EBITDA (pre IFRS16) 3.3 37.6
------------------------------------------- ------ -------------
Note: Underlying results exclude amortisation of intangible assets arising on business combinations, exceptional reorganisation, legal and refinancing costs, exceptional transaction costs, exceptional National Minimum Wage remediation and financial penalties, revised audit scope and increased audit fees, employee dispute settlements, goodwill impairment and the non-cash charge/credit for share-based payment costs.
The Group's headroom relative to available committed banking facilities as at 31 December 2019 was GBP43.7m (31 December 2018 restated: GBP52.4m) as set out below:
2019 2018
GBPm GBPm
----------------------------------------------- ----- -----
Cash at bank 25.0 16.2
Cash at bank held outside of facility* - (3.8)
Overdraft facility unutilised 18.6 25.0
Committed revolving credit facility unutilised 0.1 15.0
----------------------------------------------- ----- -----
Banking facility headroom 43.7 52.4
----------------------------------------------- ----- -----
* excluded from headroom in 2018
Refinancing: Amendments to Credit Facilities June 2019
Following discussions with the lenders of the revolving credit facility ("RCF"), the Company and the lenders agreed on 26 June 2019 to certain amendments to the RCF. In summary:
Previous New arrangement
arrangement
Revolving Credit Facility GBP95m GBP95m
("RCF")
------------- ----------------
Overdraft GBP25m GBP25m
------------- ----------------
Accordion GBP30m -
------------- ----------------
Total Facility GBP150m GBP120m
------------- ----------------
Expiry date July 2022 July 2022
------------- ----------------
Option to extend by Yes No longer
one year available
------------- ----------------
The lenders agreed to a waiver of all quarterly financial covenant tests for the quarter ending 30 June 2019.
The key revised terms to the RCF were:
i) Relaxation of the September and December 2019 leverage covenants followed by a gradual reduction of the leverage covenant to net debt of less than 2x EBITDA by 31 December 2020;
ii) Restrictions on new material share, business and asset acquisitions until January 2021;
iii) No dividends to be declared by the Company for the 2019 and 2020 financial years;
iv) Repayment and cancellation of revolving facility commitments by GBP10.0m on both 15 November 2019 and 15 November 2020;
v) Net proceeds of the July 2019 share issue in excess of GBP30.0m were to be used to reduce, and cancel, the Credit Facilities available.
In consideration of these amendments, a fee was paid to the lenders and certain other changes were made to the Credit Facilities (including the removal of the Accordion option and the ability to request the lenders to extend the Credit Facilities for an additional 12 months beyond July 2022). The expiry date for the Credit Facility remains in July 2022. The Company agreed to pay the lenders an exit fee based on a percentage of the outstanding commitments when the Credit Facility expires or, if sooner, refinanced.
All borrowings drawn down were repayable on a monthly basis. Interest accrued on the borrowings at between 2.25% and 3.50% plus LIBOR, depending upon the level of adjusted leverage. In addition, a commitment charge of 40% of the interest liability accrued on the RCF not utilised. At the year end the unutilised amount totalled GBP0.1m.
Total underlying finance charges were GBP5.0m for the year (2018: GBP3.1m), of which GBP3.2m related to the interest costs for the RCF, GBP1.5m related to interest on customer financing arrangements and GBP0.3m related to interest discounting the IFRS 16 lease liabilities.
In December 2019, the Company agreed an amendment to the Credit Facilities which included:
i) The deferral of testing covenants at December 2019; and
ii) The agreement to waive any potential covenant breaches and defaults arising as a result of the prior year adjustments.
Subsequently, between January and May 2020, the Company agreed amendments to the Credit Facilities which included further deferrals of covenant testing and the reporting of such testing.
Refinancing: Amendments to Credit Facilities June 2020
Following discussions with the lenders of the revolving credit facility, the Company and the lenders agreed on 26 June 2020 to a revised financing structure. In summary:
Previous New arrangement
arrangement
Revolving credit facility GBP78.2m GBP30.0m
("RCF")
------------- ----------------
Overdraft GBP25.0m -
------------- ----------------
Receivables Finance Facility - GBP73.2m
("RFF") (invoice discounting)
- maximum
------------- ----------------
Total Facility GBP103.2m GBP103.2m
------------- ----------------
Expiry date July 2022 July 2022
------------- ----------------
The previous RCF was reduced from GBP95.0m to GBP78.2m with cancellations in July 2019 and November 2019.
The key terms of the new facilities are below, with other terms of the RCF remaining in place:
i) Repayment and cancellation of RCF commitments by GBP10.0m on 31 July 2020;
ii) The RFF can initially be drawn down against the receivables of the Recruitment GB division and the Northern Ireland part of the Recruitment Ireland division;
iii) Interest on the RFF accruing at 3.50% plus Bank of England base rate;
iv) Minimum EBITDA and minimum liquidity covenants until a return to leverage and interest cover covenants in January 2022. The minimum EBITDA covenants have been calculated by reference to the Group's downside case;
v) Restrictions on new material share, business and asset acquisitions until July 2022; and
vi) No dividends to be declared by the Company until July 2022.
In consideration of these amendments, a fee was paid to the lenders of GBP0.7m.
The Group is also funded through customer financing agreements with some of its key customers. In addition, the Group has an uncommitted separate receivables financing facility with a maximum value of GBP25m.
Dividend policy
As a condition of refinancing the credit facility, no dividends will be declared by the Company for the 2019 financial year.
Going concern
The financial statements have been prepared on a going concern basis. The Directors have reviewed this basis and made full disclosure in note 3, concluding that there is a material uncertainty which may cast significant doubt upon the Group's and the Company's ability to continue as a going concern and that, therefore, the Group and Company may be unable to realise their assets and discharge their liabilities in the normal course of business. Nevertheless, after engaging in dialogue with key stakeholders and considering the uncertainties described in note 3, as well as the mitigating actions available to the Group as described in note 3, the Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future.
Impact of amendments to International Financial Reporting Standards: IFRS 16 Leases
IFRS 16 Leases is effective for accounting periods beginning on or after 1 January 2019. Therefore, these financial statements cover the first year to which the transition to IFRS 16 is applicable. The Group has adopted the modified retrospective approach to transition, meaning that the cumulative transitional adjustments to assets, liabilities and equity have been recognised on 1 January 2019 and no comparative figures have been restated. For the rest of the 2019 financial year, all leasing arrangements that are covered by the provisions of IFRS 16 have been accounted for in line with this new accounting standard.
Daniel Quint
Interim Chief Financial Officer
29 June 2020
Consolidated statement of comprehensive income
For the year ended 31 December 2019
2018 Non-
2019 2019 Non- 2018 Underlying underlying* 2018 Total
Underlying underlying* 2019 Total Restated Restated Restated
Note GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ---- ----------- ------------ ---------- --------------- ------------ ----------
Continuing operations
------------------------ ---- ----------- ------------ ---------- --------------- ------------ ----------
Revenue 4 1,076.7 - 1,076.7 1,120.9 - 1,120.9
Cost of sales 5 (990.2) - (990.2) (1,004.1) - (1,004.1)
------------------------ ---- ----------- ------------ ---------- --------------- ------------ ----------
Gross profit 86.5 - 86.5 116.8 - 116.8
------------------------ ---- ----------- ------------ ---------- --------------- ------------ ----------
Administrative expenses 5 (87.3) (39.1) (126.4) (84.0) (47.5) (131.5)
------------------------ ---- ----------- ------------ ---------- --------------- ------------ ----------
Operating (loss)/profit (0.8) (39.1) (39.9) 32.8 (47.5) (14.7)
------------------------ ---- ----------- ------------ ---------- --------------- ------------ ----------
Finance costs (5.0) (3.2) (8.2) (3.1) - (3.1)
------------------------ ---- ----------- ------------ ---------- --------------- ------------ ----------
(Loss)/profit for the
year before taxation (5.8) (42.3) (48.1) 29.7 (47.5) (17.8)
------------------------ ---- ----------- ------------ ---------- --------------- ------------ ----------
Tax credit/(expense) 6 1.7 2.4 4.1 (6.6) 8.4 1.8
------------------------ ---- ----------- ------------ ---------- --------------- ------------ ----------
(Loss)/profit for the
year (4.1) (39.9) (44.0) 23.1 (39.1) (16.0)
------------------------ ---- ----------- ------------ ---------- --------------- ------------ ----------
Items that will not be reclassified to
profit and loss - actuarial losses, net
of tax (0.7) (0.5)
Items that may be reclassified to profit
and loss - cumulative translation loss - -
--------------------------------------------------------- ---------- --------------- ------------ ----------
Total comprehensive loss for
the year (44.7) (16.5)
------------------------------------------- ------------ ---------- --------------- ------------ ----------
Loss per ordinary share 7
Continuing operations:
Basic (96.3)p (61.2)p
Diluted (96.3)p (61.2)p
------------------------ ---- ----------- ------------ ---------- --------------- ------------ ----------
* An analysis of the non-underlying items is provided in note 5
Details of the restatement adjustments are provided in note 3.
The accompanying notes form an integral part of these financial statements.
Consolidated statement of changes in equity
For the year ended 31 December 2019
Share-
Own based Profit
Share shares Share payment and loss Total
capital JSOP premium reserve account equity
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- -------- ------- -------- -------- --------- -------
At 31 December 2017 (reported) 2.8 (8.9) 40.3 0.1 61.5 95.8
----------------------------------- -------- ------- -------- -------- --------- -------
Prior year adjustments (note
3) - - - - (0.9) (0.9)
At 31 December 2017 (restated) 2.8 (8.9) 40.3 0.1 60.6 94.9
Transition to IFRS 15: Revenue
Recognition - - - - (1.0) (1.0)
At 1 January 2018 (restated) 2.8 (8.9) 40.3 0.1 59.6 93.9
----------------------------------- -------- ------- -------- -------- --------- -------
Dividends (note 7) - - - - (7.1) (7.1)
Issue of 2018 Joint Share
Ownership Plan ("JSOP")
shares - (0.9) 0.9 - - -
Settlement of 2013 JSOP
shares - 5.0 - - 7.1 12.1
Save As You Earn ("SAYE")
share scheme - equity-settled - - - 0.2 - 0.2
----------------------------------- -------- ------- -------- -------- --------- -------
Transactions with owners - 4.1 0.9 0.2 - 5.2
----------------------------------- -------- ------- -------- -------- --------- -------
Loss for the year (restated) - - - - (16.0) (16.0)
Actuarial loss, net of taxation - - - - (0.5) (0.5)
Cumulative translation adjustments - - - - - -
----------------------------------- -------- ------- -------- -------- --------- -------
Total comprehensive loss
for the year, net of tax - - - - (16.5) (16.5)
----------------------------------- -------- ------- -------- -------- --------- -------
At 31 December 2018 (restated) 2.8 (4.8) 41.2 0.3 43.1 82.6
----------------------------------- -------- ------- -------- -------- --------- -------
Share-
Own based Profit
Share shares Share payment and loss Total
capital JSOP premium reserve account equity
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- -------- ------- -------- -------- --------- -------
At 31 December 2018 (reported) 2.8 (4.8) 41.2 0.3 51.5 91.0
-------------------------------- -------- ------- -------- -------- --------- -------
Prior year adjustments for year
ended 31 December 2017 (note
3) - - - - (0.9) (0.9)
Prior year adjustments for year
ended 31 December 2018 (note
3) - - - - (7.5) (7.5)
-------------------------------- -------- ------- -------- -------- --------- -------
At 31 December 2018 (restated) 2.8 (4.8) 41.2 0.3 43.1 82.6
-------------------------------- -------- ------- -------- -------- --------- -------
Transition to IFRS 16: Leases
(note 15) - - - - (0.1) (0.1)
At 1 January 2019 (restated) 2.8 (4.8) 41.2 0.3 43.0 82.5
-------------------------------- -------- ------- -------- -------- --------- -------
Issue of share capital 4.1 - 36.9 - - 41.0
Costs of issue of share capital - - (3.0) - - (3.0)
Save As You Earn ("SAYE") share
scheme - equity-settled - - - 0.2 (0.2) -
-------------------------------- -------- ------- -------- -------- --------- -------
Transactions with owners 4.1 - 33.9 0.2 (0.2) 38.0
-------------------------------- -------- ------- -------- -------- --------- -------
Loss for the year - - - - (44.0) (44.0)
Actuarial loss, net of taxation - - - - (0.7) (0.7)
Total comprehensive loss for
the year, net of tax - - - - (44.7) (44.7)
-------------------------------- -------- ------- -------- -------- --------- -------
At 31 December 2019 6.9 (4.8) 75.1 0.5 (1.9) 75.8
-------------------------------- -------- ------- -------- -------- --------- -------
The accompanying notes form an integral part of these financial statements.
Consolidated statement of financial position
As at 31 December 2019
Consolidated
------------------------------ ---- ---------------------------
2018 1 January
2019 Restated 2018
Note GBPm GBPm GBPm
------------------------------ ---- ----- --------- ---------
Assets
Non-current
Goodwill 8 94.9 117.2 94.2
Other intangible assets 34.0 42.9 20.8
Property, plant and equipment 9 14.6 7.6 7.7
Retirement benefit net
asset - 0.8 1.4
Deferred tax asset 1.4 0.9 0.6
------------------------------ ---- ----- --------- ---------
144.9 169.4 124.7
------------------------------ ---- ----- --------- ---------
Current
Trade and other receivables 137.7 159.5 107.7
Cash and cash equivalents 11 25.0 16.2 31.3
Restricted cash 11 12.7 - -
------------------------------ ---- ----- --------- ---------
175.4 175.7 139.0
------------------------------ ---- ----- --------- ---------
Total assets 320.3 345.1 263.7
------------------------------ ---- ----- --------- ---------
Liabilities
Current
Trade and other payables 126.4 143.4 103.4
Borrowings 12 6.4 - 8.6
Other liabilities 0.7 7.8 5.1
Provisions 16.0 21.6 -
Lease liabilities 10 2.6 - -
Current tax liabilities - - 3.3
152.1 172.8 120.4
------------------------------ ---- ----- --------- ---------
Non-current
Borrowings 12 78.1 79.2 39.2
Other liabilities 1.4 0.3 3.2
Provisions 2.4 3.5 3.3
Lease liabilities 10 5.8 - -
Deferred tax liabilities 4.7 6.7 2.7
------------------------------ ---- ----- --------- ---------
92.4 89.7 48.4
------------------------------ ---- ----- --------- ---------
Total liabilities 244.5 262.5 168.8
------------------------------ ---- ----- --------- ---------
Equity
Share capital 13 6.9 2.8 2.8
Own shares (4.8) (4.8) (8.9)
Share premium 75.1 41.2 40.3
Share-based payment reserve 0.5 0.3 0.1
Profit and loss account (1.9) 43.1 60.6
------------------------------ ---- ----- --------- ---------
Total equity 75.8 82.6 94.9
------------------------------ ---- ----- --------- ---------
Total equity and liabilities 320.3 345.1 263.7
------------------------------ ---- ----- --------- ---------
Details of the restatement adjustments are provided in note 3. The 1 January 2018 balance sheet is presented before the adjustment for the transition to IFRS 15 'Revenue Recognition', as disclosed in the Consolidated statement of changes in equity.
The accompanying notes form an integral part of these financial statements.
Consolidated statement of cash flows
For the year ended 31 December 2019
2018
2019 Restated
Note GBPm GBPm
-------------------------------------------------------- ---- ------ ---------
Cash flows from operating activities 14 1.6 13.1
-------------------------------------------------------- ---- ------ ---------
Taxation paid 6 (1.1) (6.4)
Net cash inflow from operating activities 0.5 6.7
-------------------------------------------------------- ---- ------ ---------
Cash flows from investing activities - trading
Purchases of property, plant and equipment 9 (2.5) (3.7)
Sale of property, plant and equipment 0.6 -
Purchase of intangible assets - software (3.2) (2.7)
-------------------------------------------------------- ---- ------ ---------
Free cash (used by)/from operations (4.6) 0.3
-------------------------------------------------------- ---- ------ ---------
Cash flows from investing activities - acquisitions
Acquisition of businesses - cash paid, net of cash
acquired - (34.4)
Acquisition of businesses - deferred consideration
for prior year acquisitions (7.2) (1.6)
-------------------------------------------------------- ---- ------ ---------
Net cash flows from investing activities - acquisitions (7.2) (36.0)
-------------------------------------------------------- ---- ------ ---------
Total cash flows arising from investing activities (12.3) (42.4)
-------------------------------------------------------- ---- ------ ---------
Total cash flows arising from operating and investing
activities (11.8) (35.7)
-------------------------------------------------------- ---- ------ ---------
Cash flows from financing activities
New loans (net of transaction fees) 24.9 36.3
Repayment of loans in acquired entities - (13.6)
Loan repayments (26.8) (4.4)
Principal repayment of lease liabilities (3.2) -
Interest paid (6.0) (2.7)
Dividends paid 7 - (7.1)
Gross proceeds from sale of Joint Share Ownership
Plan ("JSOP") shares - 12.1
Payment into restricted fund (12.7) -
Gross proceeds from the issue of share capital 41.0 -
Costs relating to the issue of share capital (3.0) -
-------------------------------------------------------- ---- ------ ---------
Net cash flows from financing activities 14.2 20.6
-------------------------------------------------------- ---- ------ ---------
Net change in cash and cash equivalents 2.4 (15.1)
-------------------------------------------------------- ---- ------ ---------
Cash and cash equivalents at beginning of year 16.2 31.3
Cash and cash equivalents at end of year 11 18.6 16.2
-------------------------------------------------------- ---- ------ ---------
The accompanying notes form an integral part of these financial statements.
Notes to the financial information
For the year ended 31 December 2019
1 Nature of operations
The principal activities of Staffline Group plc and its subsidiaries ("the Group") include the provision of recruitment and outsourced human resource services to industry and the provision of skills training and probationary services.
2 General information and statement of compliance
Staffline Group plc, a Public Limited Company limited by shares listed on AIM ("the Company"), is incorporated and domiciled in England, United Kingdom. The Company acts as the holding company of the Group. The Company's registration number is 05268636.
The financial information set out in this document does not constitute the Group's statutory accounts for the years ended 31 December 2019 or 2018 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the registrar of companies. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) contained an Emphasis of Matter on the impact of non-compliance of National Minimum Wage legislation non-compliance and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. Statutory accounts for 2019 will be delivered to the registrar of companies in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) contained an Emphasis of Matter highlighting a materiality uncertainly related to going concern and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006
The financial statements for the year ended 31 December 2019 (including the comparatives for the year ended 31 December 2018) were approved and authorised for issue by the Board of Directors on 29 June 2020. This results announcement for the year ended 31 December 2019 was also approved by the Board on 29 June 2020
In 2019 the Group has adopted new guidance for the recognition of leases (see note 3 below). The new standard has been applied using the modified retrospective approach, with the cumulative effect of adoption as at 1 January 2019 being recognised as a single adjustment to retained earnings. Accordingly, the Group is not required to present a third statement of financial position as at that date.
3 Accounting policies
Basis of preparation
The Consolidated financial statements are prepared for the year ended 31 December 2019. The Consolidated financial statements of the Group have been prepared on a going concern basis using the significant accounting policies and measurement bases summarised below, and in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and with the Companies Act 2006 as applicable to companies reporting under IFRS. The financial statements are prepared under the historical cost convention except for contingent consideration and cash-settled share options which are measured at fair value.
The Group has adopted the new accounting pronouncements which have become effective this year, which are as follows:
IFRS 16 'Leases'
IFRS 16 'Leases' replaces IAS 17 'Leases' along with three Interpretations (IFRIC 4 'Determining whether an Arrangement contains a Lease', SIC 15 'Operating Leases-Incentives' and SIC 27 'Evaluating the Substance of Transactions Involving the Legal Form of a Lease').
The adoption of this new Standard has resulted in the Group recognising a right-of-use asset and related lease liability in connection with all former operating leases except for those identified as low-value or having a remaining lease term of less than 12 months from the date of initial application. The new Standard has been applied using the modified retrospective approach, with the cumulative effect of adopting IFRS 16 being recognised in equity as an adjustment to the opening balance of retained earnings for the current period. Prior periods have not been restated.
For contracts in place at the date of initial application, the Group has elected to apply the definition of a lease from IAS 17 and IFRIC 4 and has not applied IFRS 16 to arrangements that were previously not identified as a lease under IAS 17 and IFRIC 4. The Group has elected not to include initial direct costs in the measurement of the right-of-use asset for operating leases in existence at the date of initial application of IFRS 16, being 1 January 2019. At this date, the Group has also elected to measure the right-of-use assets at an amount equal to the lease liability adjusted for any prepaid or accrued lease payments that existed at the date of transition.
Instead of performing an impairment review on the right-of-use assets at the date of initial application, the Group has relied on its historic assessment as to whether leases were onerous immediately before the date of initial application of IFRS 16. On transition, for leases previously accounted for as operating leases with a remaining lease term of less than 12 months and for leases of low-value assets the Group has applied the optional exemptions to not recognise right-of-use assets but to account for the lease expense on a straight-line basis over the remaining lease term.
On transition to IFRS 16 the weighted average incremental borrowing rate applied to lease liabilities recognised under IFRS 16 was 2.3%.
The Group has benefited from the use of hindsight for determining the lease term when considering options to extend and terminate leases.
Reconciliations of the financial statement line items from IAS 17 to IFRS 16 at 1 January 2019 and of total operating lease commitments at 31 December 2018 (as disclosed in the financial statements to 31 December 2018) to the lease liabilities recognised at 1 January 2019, are given in note 15.
At the date of authorisation of these financial statements, several new, but not effective, Standards and amendments to existing Standards and Interpretations have been published by the IASB. None of these Standards or amendments to existing Standards have been adopted early by the Group.
The Directors anticipate that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the pronouncement. New Standards, amendments and Interpretations not adopted in the current year have not been disclosed as they are not expected to have a material impact on the Group's financial Statements.
The Consolidated financial statements are presented in sterling, which is the presentational currency of the parent Company and Group. Selected, principal accounting policies of the Group are set out below and have been consistently applied, unless stated otherwise.
Going concern
The financial statements are prepared on a going concern basis notwithstanding that the Group has reported an underlying loss before tax of GBP5.8m (2018 restated: GBP29.7m underlying profit before tax) and an unadjusted loss before tax of GBP48.1m (2018 restated: GBP17.8m loss before tax). As at 31 December 2019, the Group had net current assets (excluding restricted cash) of GBP10.6m (2018 restated: GBP2.9m) and net assets of GBP75.8m (2018 restated: GBP82.6m). The Group generated an underlying EBITDA profit (prior to exceptional and non-recurring items) of GBP6.5m (2018 restated: GBP37.6m).
The Group meets its day to day working capital requirements from a GBP30.0m revolving credit facility, a GBP73.2m receivables financing facility, an uncommitted (non-recourse) invoice discounting facility with a limit of GBP25.0m, supply chain financing arrangements with certain customers and the Group's cash balances. The Group's revolving credit facility and receivables financing facility mature on 4 July 2022 and its GBP25.0m uncommitted (non-recourse) invoice discounting facility is currently on a rolling basis. The revolving credit facility is scheduled to reduce by GBP10.0m to GBP20.0m on 31 July 2020. The revolving credit facility and receivables financing facility are subject to covenants summarised below.
On 20 March 2020, the Government announced that no VAT payments due from businesses between 20 March 2020 and the end of June 2020 would be required to be made and that these would become payable on or before 31 March 2021. This payment delay provides the Group with an immediate and significant short-term liquidity improvement estimated to be GBP45.7m, of which GBP37.8m has already been realised.
The net debt position of the Group (excluding unamortised transaction costs), as discussed earlier, has reduced during 2019 from GBP63.8m to GBP59.5m on a pre-IFRS 16 basis.
As at 26 June 2020, the Group had cash at bank of GBP39.9m (excluding GBP3.5m held in an escrow account to fund outstanding liabilities in relation to National Minimum Wage ("NMW")), an undrawn commitment of GBPnil under its revolving credit facilities and an unutilised facility of GBP0.7m under its receivables financing facility, resulting in aggregate available liquidity of GBP40.6m.
Due to the sharp decline in profits in 2019 and the elevated net debt levels, a breach of lending covenants would have occurred in 2019 and 2020 were it not for flexibility shown by the Group's lenders by providing deferrals and amendments in respect of the Group's interest cover and leverage covenants until 30 June 2020. The Directors entered into discussions with the Group's lenders to amend and partially refinance its financing facilities and amend its covenants package through to 4 July 2022, culminating in the refinancing arrangement completed on 26 June 2020.
In order to commercially assess the Group's request to amend its financing facilities and covenants package, an independent business review was commissioned by the lenders. Following completion of this review and subsequent negotiations with the Group's lenders, the Group and the lenders have subsequently agreed and implemented an amendment and partial refinancing of the Group's GBP103.2m revolving credit financing facilities on 26 June 2020, that resulted in GBP73.2m of the revolving credit facilities being replaced with a receivables financing facility and a GBP30.0m revolving credit facility being retained. As noted above, the revolving credit facility is scheduled to reduce by GBP10.0m to GBP20.0m on 31 July 2020.
The interest cover and leverage covenants included under the previous revolving credit facility have been replaced in the amended revolving credit facility and receivables financing facility with a minimum EBITDA covenant (tested quarterly from 31 December 2020 to 31 December 2021), reverting back to the original covenant package from 1 January 2022 to the end of the facilities, with the minimum look-forward liquidity covenant (tested weekly) being retained. The minimum EBITDA covenants have been calculated by reference to the Group's downside case.
The amended revolving credit facility and receivables financing facility now include a cross-default clause that is triggered if there is a withdrawal, or reduction in the facility size and/or advance rate, of the GBP25.0m uncommitted (non-recourse) invoice discounting facility. The Group has a 28-day cure period in relation to the cross-default clause.
The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Executive Chairman's Statement. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review.
As described in the Executive Chairman's Statement, the Group experienced challenging trading conditions across all divisions in 2019 and reported an operating loss for the year. In Recruitment GB, customer confidence was impacted by the delay to the publication of the 2018 full year results, together with a heightened level of uncertainty surrounding Brexit. In the second half, extremely weak consumer confidence impacted our end customers which fed through to demand for our services. Meanwhile, throughout the year, PeoplePlus was undergoing fundamental reorganisation and transition, heavily impacting the trading performance. In addition, the Directors consider that the outlook presents significant challenges in terms of sales volumes over the coming months. The unprecedented and ever-changing impact of COVID-19, uncertainties specifically related to post-Brexit transition arrangements, well documented issues within the non-food sectors (including retail, manufacturing and automotive) and a slowdown in new contracts and apprenticeship starts are all impacting on sales volumes. Whilst the Directors have instigated measures to manage liquidity (described below), these circumstances create material uncertainties over future trading results and cash flows.
The Directors have prepared base and sensitised cash flow information for the period ending 31 December 2021 which incorporates the Directors current view of the impact of the trading and economic risks and uncertainties noted above. Based upon a review of the Group's forecasts and associated cash flows for the period ending 31 December 2021, the Group's liquidity forecast (considering its available financing facilities) for this period is sufficient to cover the Group's and the Company's commitments during that period with the exception of a portion of the deferred VAT falling due on or before 31 March 2021, which represents a material uncertainty in relation to the Group's liquidity, although the Directors are working on options to mitigate this liquidity risk.
This potential liquidity issue may also result in a potential breach of the Group's minimum look-forward liquidity covenant under the recently amended revolving credit facility and receivables financing facility. In addition, it should be noted that there is a risk of a potential breach of the Group's new minimum EBITDA covenant if trading performance is sufficiently below forecast, although the minimum EBITDA covenants are set based on the Group's downside case. If required, the Directors will enter into discussions with its financing providers in respect of any potential covenant breaches. As noted above, the Group has been in active discussions with its financing providers and achieved covenant deferrals and amendments during 2019 and 2020.
It should also be noted that the uncommitted nature of the Group's GBP25.0m (non-recourse) invoice discounting facility, accompanied by the cross-default clause included in its amended revolving credit facility and receivables financing facility, represents a material uncertainty in respect of the Group's financing and liquidity during the period to 31 December 2021. If this cross-default clause were to be triggered, the Directors have a 28 day cure period to enter into discussions with its financing providers to commence actions to resolve this matter, which could include the reinstatement of the facility, replacement of the facility with new third party financing and/or an equity capital injection. Based on recent discussions with the provider of the Group's GBP25.0m (non-recourse) invoice discounting facility, the Directors understanding is that the provider presently remains supportive of the Group absent any unforeseen circumstances.
The Directors believe they can continue to operate within existing lending levels for the foreseeable future based on the following mitigating actions:
-- The Group has recently changed the composition of the board of Directors and implemented improvements in corporate governance which will support more robust control, decision making and accountability within the Group leading to a considerably enhanced ability to drive, measure and deliver change.
-- The Directors, with support from the senior leadership team, have commenced the implementation of a turnaround plan. The turnaround plan focuses on profit improvement and yield management measures (including contract renegotiations and exit from marginal or unprofitable contracts), cost reduction initiatives (including a reduction in non-critical business spend) and working capital improvement initiatives (including tight control over the timing of payments and a continued drive to further improve cash collections including a renegotiation of payment terms on certain contracts and the possible implementation of additional supply chain financing arrangements with certain customers) to ensure that lending limits and covenants are not breached.
-- If required, the Directors will enter into discussions with HMRC to further defer some (or all) of the deferred VAT falling due on or before 31 March 2021.
-- The Directors will explore other options to replace the Group's existing financing facilities and/or recapitalise the Group (including the possibility of a future equity capital raise, replacement third party financing and/or disposals).
Without successful implementation of the mitigating actions noted above, and the ongoing support from the Group's financing providers (including the uncommitted (non-recourse) invoice discounting facility), the Group would likely be unable to operate within its banking facilities.
The Directors have concluded that the combination of the circumstances mentioned above represents a material uncertainty which may cast significant doubt upon the Group's and the Company's ability to continue as a going concern and that, therefore, the Group and Company may be unable to realise their assets and discharge their liabilities in the normal course of business. Nevertheless, after engaging in dialogue with key stakeholders and considering the uncertainties described above as well as the mitigating actions available to the Group (including the turnaround plan), the Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future.
For these reasons, the Directors continue to adopt the going concern basis of accounting in preparing the annual financial statements. The Group and Company financial statements do not include the adjustments that would result if the Group and Company were unable to continue as a going concern.
Prior year restatements
Following the extended 2018 audit, the Board has continued with detailed reviews to further improve the Group's internal controls. These reviews identified accounting errors relating to the preparation of the 2018 annual results. The 2017 statement of financial position, being the 2018 opening reserves, and the 2018 income statement, 2018 statement of financial position and 2018 cash flow statement (presented as comparatives in the 2019 Financial Statements) contain prior year adjustments. Overall, the 2018 opening reserves position has been decreased by GBP0.9m and the total 2018 income statement impact is a GBP7.5m reduction in profit after tax, following a decrease in underlying operating profit of GBP6.3m and in non-underlying loss of GBP1.9m.
Management have focussed on strengthening the balance sheet control environment. The Recruitment GB division acquired several businesses in 2018 and within a short timeframe endeavoured to integrate the acquired finance functions, whilst at the same time changing some critical IT systems covering operations, payroll and finance. This, combined with high staff turnover, resulted in weaknesses in the balance sheet control environment, which have now been rectified.
Restatements for the year ended 31 December 2017
Restatement of Consolidated statement of financial position
As at 31 December 2017
Historic
Lease Holiday Polish fair
2017 dilapidations pay subsidiary value Taxation 2017
Reported provision provision reserves provisions GBPm Restated
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- --------- -------------- ---------- ----------- ----------- ---------- ---------
1 2 3 4
Assets
Non-current
Goodwill 94.2 - - - - - 94.2
Other intangible
assets 20.8 - - - - - 20.8
Property, plant
and equipment 7.7 - - - - - 7.7
Retirement benefit
net asset 1.4 - - - - - 1.4
Deferred tax asset 0.5 - - - - 0.1 0.6
-------------------------- --------- -------------- ---------- ----------- ----------- ---------- ---------
124.6 - - - - 0.1 124.7
-------------------------- --------- -------------- ---------- ----------- ----------- ---------- ---------
Current
Trade and other
receivables 107.6 - - (0.2) 0.3 - 107.7
Cash and cash equivalents 31.3 - - - - - 31.3
138.9 - - (0.2) 0.3 - 139.0
-------------------------- --------- -------------- ---------- ----------- ----------- ---------- ---------
Total assets 263.5 - - (0.2) 0.3 0.1 263.7
-------------------------- --------- -------------- ---------- ----------- ----------- ---------- ---------
Liabilities
Current
Trade and other
payables 103.0 - 0.4 - - - 103.4
Borrowings 8.6 - - - - - 8.6
Other liabilities 5.1 - - - - - 5.1
Current tax liabilities 3.4 - - - - (0.1) 3.3
-------------------------- --------- -------------- ---------- ----------- ----------- ---------- ---------
120.1 - 0.4 - - (0.1) 120.4
-------------------------- --------- -------------- ---------- ----------- ----------- ---------- ---------
Non-current
Borrowings 39.2 - - - - - 39.2
Other liabilities 3.2 - - - - - 3.2
Provisions 2.5 0.8 - - - - 3.3
Deferred tax liabilities 2.7 - - - - - 2.7
-------------------------- --------- -------------- ---------- ----------- ----------- ---------- ---------
47.6 0.8 - - - - 48.4
-------------------------- --------- -------------- ---------- ----------- ----------- ---------- ---------
Total liabilities 167.7 0.8 0.4 - - (0.1) 168.8
-------------------------- --------- -------------- ---------- ----------- ----------- ---------- ---------
Equity
Share capital 2.8 - - - - - 2.8
Own shares (8.9) - - - - - (8.9)
Share premium 40.3 - - - - - 40.3
Share-based payment
reserve 0.1 - - - - - 0.1
Profit and loss
account 61.5 (0.8) (0.4) (0.2) 0.3 0.2 60.6
-------------------------- --------- -------------- ---------- ----------- ----------- ---------- ---------
Total equity 95.8 (0.8) (0.4) (0.2) 0.3 0.2 94.9
-------------------------- --------- -------------- ---------- ----------- ----------- ---------- ---------
Total equity and
liabilities 263.5 - - (0.2) 0.3 0.1 263.7
-------------------------- --------- -------------- ---------- ----------- ----------- ---------- ---------
1. Lease dilapidation provisions - Administrative expenses and provisions understated by GBP0.8m
The detailed review of lease agreements carried out during the year for the adoption of IFRS 16 highlighted that most lease agreements on properties occupied by the Recruitment GB division contain dilapidation provisions but that hitherto no financial provisions had been made. The potential liability for each property has been calculated based on the estimated cost of making good in accordance with the lease terms.
2. Holiday pay provision - Cost of sales and accruals understated by GBP0.4m
The Group makes provision for the future cost of holiday pay earned by workers up to the reporting date. During the audit of the Recruitment GB division it was discovered that no provision had been made for holiday pay accrued by workers in the 'drivers' category. The omission occurred because prior to 2019 their pay was processed on a separate payroll system and the accrual was overlooked.
3. Polish subsidiary reserves - Revenue and trade receivables overstated by GBP0.2m
The Group owns two trading companies that are registered in, and operate in, Poland. The financial results of the companies were not previously available at the time the Group announces its results. Consequently, the Group included estimated results in the years ended 31 December 2017 and 2018. Financial returns received for the current year reveal that, on a cumulative basis, past results were significantly different from previous estimates and that an adjustment to brought forward retained earnings is required.
4. Historic fair value provisions - Administrative expenses overstated, and trade receivables understated by GBP0.3m
Upon acquisition of Milestone Operations Limited and The Warwickshire & West Mercia Community Rehabilitation Company Limited in the year ended 31 December 2015, the Group made a fair value provision for a potential negligence claim for GBP0.1m and a goodwill adjustment for GBP0.2m, respectively. Both items have been held as consolidation adjustments ever since, but they are not required and should have been written back prior to the year ended 31 December 2018.
Restatements for the year ended 31 December 2018
Restatement of Consolidated statement of comprehensive income
For the year ended 31 December 2018
Partner
2018 agency
Total & Transition 2018
As expenses accounting Impairment Other Trading Total
reported Receiv-ables accruals errors of PPE Provisions adjust-ments adjust-ments Taxation Restated
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- --------- ------------ -------- ---------- ---------- ---------- ------------ ------------ -------- ---------
1 2 3 4 5 6 7
Continuing
operations
Revenue 1,127.5 (1.1) - (0.4) - - (0.3) (4.8) - 1,120.9
Cost of sales (1,005.6) - (1.7) (1.1) - - (0.7) 5.0 - (1,004.1)
--------------- --------- ------------ -------- ---------- ---------- ---------- ------------ ------------ -------- ---------
Gross profit 121.9 (1.1) (1.7) (1.5) - - (1.0) 0.2 - 116.8
Administrative
expenses (128.4) - (0.7) (0.5) (0.8) (1.1) - - - (131.5)
--------------- --------- ------------ -------- ---------- ---------- ---------- ------------ ------------ -------- ---------
Operating loss (6.5) (1.1) (2.4) (2.0) (0.8) (1.1) (1.0) 0.2 - (14.7)
Finance costs (3.1) - - - - - - - - (3.1)
--------------- --------- ------------ -------- ---------- ---------- ---------- ------------ ------------ -------- ---------
Loss for the
year
before taxation (9.6) (1.1) (2.4) (2.0) (0.8) (1.1) (1.0) 0.2 - (17.8) Tax credit 1.1 - - - - - - - 0.7 1.8 --------------- --------- ------------ -------- ---------- ---------- ---------- ------------ ------------ -------- --------- Loss for the year (8.5) (1.1) (2.4) (2.0) (0.8) (1.1) (1.0) 0.2 0.7 (16.0) Items that will not be reclassified to profit and loss - actuarial losses, net of tax (0.5) - - - - - - - - (0.5) --------------- --------- ------------ -------- ---------- ---------- ---------- ------------ ------------ -------- --------- Total comprehensive loss for the year (9.0) (1.1) (2.4) (2.0) (0.8) (1.1) (1.0) 0.2 0.7 (16.5) --------------- --------- ------------ -------- ---------- ---------- ---------- ------------ ------------ -------- --------- Loss per ordinary share Continuing operations: Basic (32.5)p (61.2)p Diluted (32.5)p (61.2)p --------------- --------- ------------ -------- ---------- ---------- ---------- ------------ ------------ -------- ---------
Restatement of Consolidated statement of financial position
As at 31 December 2018
Adjust- Partner
ments Agency
2018 from & Transition
As prior expenses accounting Impairment Other Trading 2018
reported year Receiv-ables accruals errors of PPE Provisions adjust-ments adjust-ments Taxation Restated
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ -------- ------- ------------ -------- ---------- ---------- ---------- ------------ ------------ -------- --------
1 2 3 4 5 6 7
Assets
Non-current
Goodwill 116.3 - - - - - 0.9 - - - 117.2
Other
intangible
assets 42.9 - - - - - - - - - 42.9
Property,
plant and
equipment 8.6 - - - (0.2) (0.8) - - - - 7.6
Retirement
benefit
net asset 0.8 - - - - - - - - - 0.8
Deferred tax
asset 0.9 0.1 - - - - - - - (0.1) 0.9
------------ -------- ------- ------------ -------- ---------- ---------- ---------- ------------ ------------ -------- --------
169.5 0.1 - - (0.2) (0.8) 0.9 - - (0.1) 169.4
------------ -------- ------- ------------ -------- ---------- ---------- ---------- ------------ ------------ -------- --------
Current
Trade and
other
receivables 157.7 0.2 (0.3) - (0.7) - - (0.3) 2.1 0.8 159.5
Cash and
cash
equivalents 16.2 - - - - - - - - - 16.2
173.9 0.2 (0.3) - (0.7) - - (0.3) 2.1 0.8 175.7
------------ -------- ------- ------------ -------- ---------- ---------- ---------- ------------ ------------ -------- --------
Total assets 343.4 0.3 (0.3) - (0.9) (0.8) 0.9 (0.3) 2.1 0.7 345.1
------------ -------- ------- ------------ -------- ---------- ---------- ---------- ------------ ------------ -------- --------
Liabilities
Current
Trade and
other
payables 136.1 0.4 0.8 2.4 1.1 - - 0.7 1.9 - 143.4
Other
liabilities 7.8 - - - - - - - - - 7.8
143.9 0.4 0.8 2.4 1.1 - - 0.7 1.9 - 151.2
------------ -------- ------- ------------ -------- ---------- ---------- ---------- ------------ ------------ -------- --------
Non-current
Borrowings 79.2 - - - - - - - - - 79.2
Other
liabilities 0.3 - - - - - - - - - 0.3
Provisions * 22.3 0.8 - - - - 2.0 - - - 25.1
Deferred tax
liabilities 6.7 - - - - - - - - - 6.7
------------ -------- ------- ------------ -------- ---------- ---------- ---------- ------------ ------------ -------- --------
108.5 0.8 - - - - 2.0 - - - 111.3
------------ -------- ------- ------------ -------- ---------- ---------- ---------- ------------ ------------ -------- --------
Total
liabilities 252.4 1.2 0.8 2.4 1.1 - 2.0 0.7 1.9 - 262.5
------------ -------- ------- ------------ -------- ---------- ---------- ---------- ------------ ------------ -------- --------
Equity
Share
capital 2.8 - - - - - - - - - 2.8
Own shares (4.8) - - - - - - - - - (4.8)
Share
premium 41.2 - - - - - - - - - 41.2
Share-based
payment
reserve 0.3 - - - - - - - - - 0.3
Profit and
loss
account 51.5 (0.9) (1.1) (2.4) (2.0) (0.8) (1.1) (1.0) 0.2 0.7 43.1
------------ -------- ------- ------------ -------- ---------- ---------- ---------- ------------ ------------ -------- --------
Total equity 91.0 (0.9) (1.1) (2.4) (2.0) (0.8) (1.1) (1.0) 0.2 0.7 82.6
------------ -------- ------- ------------ -------- ---------- ---------- ---------- ------------ ------------ -------- --------
Total equity
and
liabilities 343.4 0.3 (0.3) - (0.9) (0.8) 0.9 (0.3) 2.1 0.7 345.1
------------ -------- ------- ------------ -------- ---------- ---------- ---------- ------------ ------------ -------- --------
* Provisions were all shown within the non-current category in the prior year. See note 21 for ageing analysis.
1. Receivables - Trade receivables and revenue overstated by GBP0.3m. Accruals understated, and revenue overstated by GBP0.8m
The Group had an arrangement with a Saudi business for the use of the PeoplePlus name in the Middle East in exchange for a turnover related 'franchise fee'. The potential non-recovery of the debt of GBP0.3m was noted at 31 December 2018, but a provision was not raised on materiality grounds. The Directors consider that in view of the number and value of prior year adjustments now required, this item should be adjusted to revenue. This balance receivable was held by Staffline Group plc, whose comparative balance sheet for the year ended 31 December 2018 has been amended accordingly.
The commercial arrangements with certain customers contain adjustment clauses whereby certain employer costs (typically pension and National Insurance), which are initially charged to customers on an estimation basis, are periodically reconciled to actual costs. The calculations are reviewed on an 'open book' style basis, typically with the customer's involvement. Working with one of the Group's major customers, a review highlighted a previous misinterpretation of the contractual terms, resulting in an under-accrual of the rebate payable of GBP0.8m in the year to 31 December 2018, which has now been made good.
2. Partner Agency and overhead costs under-accrued - Accruals understated by GBP2.4m; Cost of sales understated by GBP1.7m and administrative expenses understated by GBP0.7m
Weaknesses in accounting processes and review procedures during the latter part of 2018 and early 2019 meant that a significant number of weekly charges from partner agencies were not fully accrued at 31 December 2018. A detailed review, undertaken in late 2019, highlighted the error, which amounted to an understatement of cost of sales of GBP1.7m. For similar reasons, a large number of relatively small value supplier invoices for overhead costs were also not accrued resulting in an understatement of administrative expenses of GBP0.7m (of which GBP0.3m is non-underlying).
3. Transitional accounting errors - PPE overstated by GBP0.2m, trade receivables overstated by GBP0.7m, trade payables understated by GBP1.1m, revenue overstated by GBP0.4m, cost of sales understated by GBP1.1m and administrative expenses understated by GBP0.5m
The Group acquired several businesses in the year ended 31 December 2018 and within a short timeframe endeavoured to integrate the finance functions of the acquired businesses into the Recruitment GB division financial shared service centre. In addition, the business, trade and assets of some of the acquired businesses were transferred into Staffline Recruitment Ltd. The service centre was not sufficiently resourced to cope with the volume and complexity of the task, which resulted in a number of unsupported balances being held on the company's balance sheet, to a value of GBP1.4m.
A further GBP0.6m of transport costs incurred under a new commercial arrangement with the vendor of one of the acquired businesses were booked as prepaid costs rather than being charged to revenue as incurred.
4. Impairment of PPE, CRC assets - Overstatement of PPE and understatement of administrative expenses by GBP0.8m (non-underlying)
The Warwickshire and West Mercia Community Rehabilitation Company ("CRC") contract commenced in February 2015 with an original contract end date of January 2022, and a possible extension of up to 3 years. The contract is funded by the Ministry of Justice ("MOJ"). During 2018 and 2019 the MOJ issued a series of communications outlining an intention to end the contract early (categorised as Voluntary Early Termination) and migrate the 'Offender Management' element of the service back to the National Probation Service. In late 2018 the MOJ issued notice to terminate the contract in December 2020 but in early 2019 this was updated to June 2021. As a result of a contract variation in 2018 which enacted the MOJ's right to end the contracts early, it was deemed that a write down of the carrying value of associated PPE was required in that year. A further review at December 2019 in accordance with IAS36 using a Discounted Cash Flow model has indicated that an additional write down of GBP0.8m to GBPnil should have been made.
5. Provisions - Understatement of provisions by GBP2.0m, understatement of goodwill by GBP0.9m, understatement of administrative expenses by GBP1.1m (of which GBP0.8m is non-underlying)
As a result of the business acquisitions made during 2018, the Group's property portfolio increased significantly, and, a review of office space requirements indicated that further provisions for lease dilapidations amounting to GBP0.3m, would crystallise.
During the year the Group has continued its investigations into the National Minimum Wage enquiry that was reported in the 2018 Annual Report and which gave rise to a provision totalling GBP15.1m. The further investigations and negotiations with HMRC have revealed that, based on information that was available at the time, a further provision amounting to GBP1.7m to cover sites acquired during that year and some sites in Northern Ireland, should have been made. The element relating to acquired sites amounted to GBP0.9m, which has been treated as a fair value provision and adjusted in goodwill.
6. Other adjustments a. Understatement of cost of sales and accruals by GBP0.3m
The annual financial statements of certain subsidiary companies for the year ended 31 December 2018 were finalised after the Group Annual Report had been completed. In finalising these financial statements, the subsidiary companies made adjustments, principally related to audit findings, which had not been recognised in the Group Annual Report for that year. The aggregate effect was to understate cost of sales and accruals by GBP0.3m.
b. Understatement of cost of sales and accruals by GBP0.4m
The Group makes provision for the future cost of holiday pay earned by workers up to the reporting date. During the audit of the Recruitment GB division it was discovered that no provision had been made for holiday pay accrued by workers in the 'drivers' category. The omission occurred because prior to 2019 their pay was processed on a separate payroll system and the accrual was overlooked.
c. Overstatement of revenues and trade receivables by GBP0.3m
In the years up to and including the year ended 31 December 2018, financial results for the operations in Poland were not available when the Group's results were published. The values included for Poland were therefore estimated. Detailed financial reports for the year ended December 2019 have been received, which show that the accumulated revenue reserves up to 31 December 2017 are GBP0.2m lower than estimated and are GBP0.3m lower than estimated for the year ended 31 December 2018, an overstatement of revenue and trade receivables in that year.
Trading adjustments
d. Revenue and cost of sales understated by GBP7.2m
For management reporting purposes the Recruitment GB division reports periodic revenues after deduction of certain employment related direct costs. For statutory reporting purposes an adjustment should have been made in order to correctly report revenues as amounts invoiced to third party customers and to include the costs within cost of sales. This adjustment is required to correct the omission.
e. Trade receivables and revenues understated by GBP2.8m and trade payables and cost of sales understated by GBP2.6m
The Recruitment GB division reported its results to 30 December 2018, which was inconsistent with the rest of the Group, which reported to 31 December 2018. An adjustment is required to recognise an additional day's trading to align the results of the division with the rest of the Group.
f. Revenue and cost of sales overstated by GBP13.5m
Audit testing for compliance with the requirements of IFRS 15: Revenue from Contracts with Customers, revealed that revenues have been incorrectly reported in the Datum business (part of the Recruitment GB division), which was acquired during 2018. Revenues and cost of sales arising under 'agency style' contracts were disclosed gross rather than on a net basis.
g. Revenue and cost of sales overstated by GBP2.1m, trade receivables overstated by GBP0.7m, trade payables overstated by GBP0.1m and accruals overstated by GBP0.6m
As part of the rationalisation process following the company acquisitions made in 2018, the various existing and acquired businesses entered into reciprocal trading arrangements. The revenues and associated cost of sales generated by this inter-company trading was not eliminated for the purposes of reporting the Group results arising from third party relationships. Similarly, the receivable and payable balances between the respective parties was also not eliminated as at 31 December 2018.
h. Revenue and cost of sales understated by GBP0.8m
For internal reporting purposes certain costs that are billed to customers in the Recruitment GB division were deducted from cost of sales rather than being treated as revenue.
Consolidation of subsidiaries
The Group financial statements consolidate those of the parent Company and all of its subsidiaries as at 31 December 2019 in accordance with IFRS 10. Subsidiaries are all entities to which the Group is exposed or has rights to variable returns and the ability to affect those returns through control over the subsidiary. The results of subsidiaries whose accounts are prepared in a currency other than sterling; are translated at the average rates of exchange during the period and their year-end balances at the year-end rate of exchange. Translation adjustments are taken to the profit and loss reserves.
Acquired subsidiaries and businesses are subject to the application of the acquisition accounting method. This involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary or business prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated balance sheet at these fair values, which are also used as the bases for subsequent measurement in accordance with the Group accounting policies.
Material intra-Group balances and transactions, and any unrealised gains or losses arising from intra-Group transactions, are eliminated in preparing these financial statements.
Underlying profit - non-GAAP measures of performance
In the reporting of its financial performance, the Group uses certain measures that are not defined under IFRS, the Generally Accepted Accounting Principles ("GAAP") under which the Group reports. The Directors believe that these non-GAAP measures assist with the understanding of the performance of the business. These non-GAAP measures are not a substitute, or superior to, any IFRS measures of performance but they have been included as the Directors consider them to be an important means of comparing performance year-on-year and they include key measures used within the business for assessing performance.
Non-underlying items of income and expenditure
These non-underlying charges are regarded as recurring or non-recurring items of income or expenditure of a particular size and/or nature relating to the operations of the business that in the Directors' opinion require separate identification. These items are included in "total" reported results but are excluded from "underlying" results. These items can vary significantly from year to year and therefore create volatility in reported earnings which does not reflect the Group's underlying performance.
Underlying EBITDA
Underlying operating profit before the deduction of underlying depreciation and amortisation charges. This is considered a useful measure because it approximates the underlying cash flow by eliminating depreciation and amortisation charges.
Net debt
Net debt is the amount of bank debt less available cash balances. This is a key measure as it is one on which the terms of the banking facilities are based and shows the level of external debt utilised by the Group to fund operations.
The Directors acknowledge that the adjustments made to arrive at underlying profit may not be comparable to those made by other companies, mainly in respect of the adjustment for share-based payment charges including both equity and cash-settled components. It should be noted that whilst the amortisation of acquisition-related intangible assets has been added back, the revenue from those acquisitions has not been eliminated.
All of these alternative performance measures are utilised by the Board to monitor performance and financial position. They show a comparable level of performance excluding one-off items, with which underlying performance and ability to service debt can be judged.
Business combinations
The Group applies the acquisition method in accounting for business combinations. The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair value of assets transferred, liabilities incurred and the equity interests of the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred.
Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the sum of a) fair value of consideration transferred, b) the recognised amount of any non-controlling interest in the acquiree and c) acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (i.e. gain on a bargain purchase) is recognised in the statement of comprehensive income immediately.
Segment reporting
The Group has three material operating segments: the provision of recruitment and outsourced human resource services to industry, in Great Britain (Recruitment GB) an also in Ireland (Recruitment Ireland), plus the provision of skills training and probationary services, together "PeoplePlus". Each of these operating segments is managed separately as each requires different technologies, marketing approaches and other resources. For management purposes, the Group uses the same measurement policies as those used in its financial statements.
In previous years the Groups Irish operations were included within the Recruitment segment. Following the acquisition of the 'Grafton' companies the Group's operations in Ireland are a significant proportion of the Groups total operations, which now require separate disclosure.
4 Segmental reporting
Management currently identifies three operating segments: Recruitment GB, the provision of workforce recruitment and management to industry, Recruitment Ireland, the provision of generalist recruitment services and PeoplePlus, the provision of skills training and probationary services. These operating segments are monitored by the Chief Operating Decision Maker, the Group's Board, and strategic decisions are made on the basis of segment operating results.
Segment information for the reporting year is as follows:
Recruitment Recruitment Group Total
Recruitment Recruitment Group Total GB Ireland PeoplePlus Costs Group
GB Ireland PeoplePlus Costs Group Restated Restated Restated Restated Restated
2019 2019 2019 2019 2019 2018 2018 2018 2018 2018
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ----------- ----------- ---------- ------ ------- ----------- ----------- ---------- --------- ---------
Segment
continuing
operations:
Sales revenue
from external
customers 841.1 147.7 87.9 - 1,076.7 908.1 105.3 107.5 - 1,120.9
Cost of sales (784.5) (132.1) (73.6) - (990.2) (842.2) (94.8) (67.1) - (1,004.1)
--------------- ----------- ----------- ---------- ------ ------- ----------- ----------- ---------- --------- ---------
Segment gross
profit 56.6 15.6 14.3 - 86.5 65.9 10.5 40.4 - 116.8
--------------- ----------- ----------- ---------- ------ ------- ----------- ----------- ---------- --------- ---------
Administrative
expenses (49.2) (10.7) (17.9) (2.5) (80.3) (48.9) (6.3) (21.8) (2.4) (79.4)
Depreciation,
software &
lease
amortisation (2.9) (0.6) (3.5) - (7.0) (0.7) (0.1) (3.8) - (4.6)
--------------- ----------- ----------- ---------- ------ ------- ----------- ----------- ---------- --------- ---------
Segment
underlying
operating
profit/(loss)* 4.5 4.3 (7.1) (2.5) (0.8) 16.3 4.1 14.8 (2.4) 32.8
--------------- ----------- ----------- ---------- ------ ------- ----------- ----------- ---------- --------- ---------
Reorganisation
costs
including
asset
impairment (1.3) - - - (1.3) (0.3) (0.5) (13.8) - (14.6)
Legal
investigation
professional
fees (1.0) - - - (1.0) - - - - -
NMW remediation
costs and
financial
penalties 0.7 - - - 0.7 (15.9) - - - (15.9)
Audit scope
extension (0.6) - (0.2) - (0.8) (2.1) - - - (2.1)
Transaction
costs - - - (0.9) (0.9) (1.1) - (0.8) - (1.9)
Employee
dispute
settlement - - - (1.4) (1.4) - - - - -
Legal claim - - (1.0) - (1.0) - - - - -
Amortisation
of intangibles
arising on
business
combinations (8.0) (1.3) (1.6) - (10.9) (4.0) (2.1) (5.7) - (11.8)
Goodwill
impairment (14.3) - (8.0) - (22.3) - - - - -
Share-based
payment
charge (0.1) - (0.1) - (0.2) (1.0) - (0.2) - (1.2)
--------------- ----------- ----------- ---------- ------ ------- ----------- ----------- ---------- --------- ---------
Segment
(loss)/profit
from
operations (20.1) 3.0 (18.0) (4.8) (39.9) (8.1) 1.5 (5.7) (2.4) (14.7)
--------------- ----------- ----------- ---------- ------ ------- ----------- ----------- ---------- --------- ---------
Finance costs (1.7) - (0.1) (6.4) (8.2) - (0.1) - (3.0) (3.1)
--------------- ----------- ----------- ---------- ------ ------- ----------- ----------- ---------- --------- ---------
Segment
(loss)/profit
before
taxation (21.8) 3.0 (18.1) (11.2) (48.1) (8.1) 1.4 (5.7) (5.4) (17.8)
--------------- ----------- ----------- ---------- ------ ------- ----------- ----------- ---------- --------- ---------
Tax credit 2.6 0.5 0.8 0.2 4.1 0.6 - 1.2 - 1.8
--------------- ----------- ----------- ---------- ------ ------- ----------- ----------- ---------- --------- ---------
Segment
(loss)/profit
from
continuing
operations (19.2) 3.5 (17.3) (11.0) (44.0) (7.5) 1.4 (4.5) (5.4) (16.0)
--------------- ----------- ----------- ---------- ------ ------- ----------- ----------- ---------- --------- ---------
Recruitment Recruitment Staffline Total
Recruitment Recruitment Staffline Total GB Ireland PeoplePlus Group Group
GB Ireland PeoplePlus Group Group Restated Restated Restated Restated Restated
2019 2019 2019 2019 2019 2018 2018 2018 2018 2018
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ----------- ----------- ---------- ---------- ----- ----------- ----------- ---------- --------- --------
Total
non-current
assets 71.3 16.1 57.5 - 144.9 92.7 11.2 65.5 - 169.4
--------------- ----------- ----------- ---------- ---------- ----- ----------- ----------- ---------- --------- --------
Total current
assets 134.1 21.4 19.9 - 175.4 130.8 23.0 21.5 0.4 175.7
--------------- ----------- ----------- ---------- ---------- ----- ----------- ----------- ---------- --------- --------
Total assets
(consolidated) 205.4 37.5 77.4 - 320.3 223.5 34.2 87.0 0.4 345.1
--------------- ----------- ----------- ---------- ---------- ----- ----------- ----------- ---------- --------- --------
Total
liabilities
(consolidated) 119.4 28.3 16.4 80.4 244.5 141.1 15.7 26.5 79.2 262.5
--------------- ----------- ----------- ---------- ---------- ----- ----------- ----------- ---------- --------- --------
Capital
expenditure
inc software 3.7 0.1 1.9 - 5.7 4.2 - 2.2 - 6.4
--------------- ----------- ----------- ---------- ---------- ----- ----------- ----------- ---------- --------- --------
* Segment underlying operating profit is stated before 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
Revenues can be analysed by country as follows (96% of revenues arising within the UK in 2019, 97% in 2018):
Recruitment Total
Recruitment Recruitment Total GB Recruitment Group
GB Ireland PeoplePlus Group Restated Ireland PeoplePlus Restated
2019 2019 2019 2019 2018 2018 2018 2018
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ----------- ----------- ---------- ------- ----------- ----------- ---------- ---------
UK 950.9 - 87.9 1,038.8 982.9 - 107.5 1,090.4
Republic of Ireland - 36.8 - 36.8 - 29.2 - 29.2
Poland 1.1 - - 1.1 1.3 - - 1.3
952.0 36.8 87.9 1,076.7 984.2 29.2 107.5 1,120.9
-------------------- ----------- ----------- ---------- ------- ----------- ----------- ---------- ---------
The results of the Group's operations on the island of Ireland and Group head office costs, which were previously included within the Recruitment division, are now shown separately. The comparative results have been restated accordingly.
No customer contributed more than 10% of the Group's revenue during either 2019 or 2018.
5 Expenses by nature
Expenses by nature are as follows:
Underlying expenses
2018
2019 Restated
GBPm GBPm
----------------------------------------------------- ------- ---------
Employee benefits expenses - cost of sales 950.3 958.4
Employee benefits expenses - administrative expenses 45.4 46.4
Depreciation and software amortisation 7.3 4.8
Operating lease expenses 1.2 5.4
Other expenses 73.3 73.1
----------------------------------------------------- ------- ---------
1,077.5 1,088.1
----------------------------------------------------- ------- ---------
Disclosed as:
Cost of sales 990.2 1,004.1
Administrative expenses 87.3 84.0
----------------------------------------------------- ------- ---------
1,077.5 1,088.1
----------------------------------------------------- ------- ---------
Auditors' remuneration in their capacity as auditors of the parent and Consolidated financial statements is GBP15,000 and in the capacity as auditor of subsidiary companies is GBP1,176,000. This includes all expenses. A further GBP200,000 cost was incurred in respect of audit related assurance services. There were no fees in respect of acquisitions or tax compliance services.
Of the above, GBP805,000 is for additional audit procedures including prior year adjustments, which is considered to be non-underlying.
For the year ended 31 December 2018, remuneration paid to the Group's previous Auditor as auditors of the parent and Consolidated financial statements was GBP14,200 and in their capacity as auditor of subsidiary companies was GBP265,800. In addition, extended audit fees of GBP2,100,000 were also paid. Non-audit remuneration in respect of acquisitions totalled GBP30,00 and for tax compliance services GBP5,000.
Non-underlying expenses
2018
2019 Restated
Note GBPm GBPm
-------------------------------------------------------- ---- ----- ---------
Reorganisation costs 1 1.3 10.6
Impairment of intangible fixed assets (reorganisation
related) 1 - 2.5
Impairment of tangible fixed assets (reorganisation
related) (see note 9) 2 - 1.5
Legal investigation professional fees 3 1.0 -
NMW remediation costs and financial penalties 3 (0.7) 15.9
Revised audit scope and increased audit fees 4 0.8 2.1
Transaction costs - business acquisitions and strategic
options 5 0.9 1.9
Employee dispute settlement 6 1.4 -
Legal claim 7 1.0 -
Refinancing costs 8 3.2 -
Amortisation of intangible assets arising on business
combinations (licences, customer contracts) 9 10.9 11.8
Goodwill impairment (see note 8) 10 22.3 -
Share-based payment charges - Directors - 0.6
Share-based payment charges - other senior executives 0.2 0.6
-------------------------------------------------------- ---- ----- ---------
42.3 47.5
-------------------------------------------------------- ---- ----- ---------
Tax credit on above non-underlying expenses (note
6) (2.4) (8.4)
-------------------------------------------------------- ---- ----- ---------
Post taxation effect on above non-underlying expenses 39.9 39.1
-------------------------------------------------------- ---- ----- ---------
1. During the prior year the Group implemented a strategy of transitioning the PeoplePlus division away from a predominantly Work Programme driven business to a skills and training business, in order to serve wider range of clients across both Government and commercial sectors. Significant costs were incurred during the prior year to reduce both the number of employees and number of locations within the division, along with associated IT costs, and the programme has continued into the current year.
2. Impairment of tangible and intangible fixed assets relates to the impact of the decision by the Ministry of Justice ("MoJ") to terminate all Community Rehabilitation Company ("CRC") contracts in September 2020, ahead of the contract end date of January 2022, with compensation payable by the MoJ for early termination. At the end of December 2018, the net book value of related intangible and tangible fixed assets was GBP2.5m and GBP1.4m respectively. In light of the contract variation, these assets were considered to be impaired although the charge of GBP0.7m in relation to tangible fixed assets is considered to have been understated by GBP0.8m and a prior year adjustment has been made, see note 3 for details.
3. During the prior year, HMRC commenced a review into the Recruitment GB division's compliance with National Minimum Wage Regulations. The payment of the National Minimum Wage is a legal requirement, covering all working time including preparation time. As a relatively new initiative, HMRC has conducted a wide-ranging review across industry, including looking back at prior periods. The review of Recruitment GB identified a number of breaches, based on end-user custom and practice for prior periods. The HMRC review related to years 2013 to 2018 and, following the steps that have been put in place, the business is now fully compliant and has robust controls to ensure no further non-compliance. During the current year, further costs of GBP0.9m have been incurred in relation to legal costs. The Group has taken a proactive and transparent approach toward its interactions with HMRC and consequently the final penalty determination was lower than was originally provided for. Taken with other cost adjustments the current provision estimate has reduced by approximately GBP0.7m.
4. Following the allegations made on 29 January 2019, as detailed in the 2018 annual report, a revised audit scope was agreed with PwC, the Group's former auditor. These costs were originally expected to be GBP1.8m but further costs of GBP0.3m were omitted from the estimate. Consequently, a prior year adjustment has been made to recognise the full cost in the correct period. There were also additional audit and assurance fees incurred in the current year.
5. During the prior year the Group acquired seven businesses, incurring significant professional fees. This level of activity was much higher than either the current or previous years. Further costs have been incurred in the current year in relation to advice on the Group's strategic options.
6. During the year, the Group lost a historical legal claim involving share incentives payable to an ex-employee amounting to GBP1.4m.
7. A legal claim relating to the sale of A4e's Indian business to the management team in July 2014, before the Group acquired A4e in April 2015. The claim is for financial overstatement at the time of the sale and alleged fraud. The case is currently in arbitration and contractually must be heard under Indian law.
8. Costs incurred for refinancing the Group's bank credit facilities, comprise the full write off of existing and new arrangement fees of GBP1.8m and provision for the future cost of exiting the facility of GBP1.4m. Further details of the refinancing are given in note 12.
9. The charge for amortisation of intangible assets arising on business combinations relates principally to the acquisitions of the Endeavour Group, Passionate About People, the A4e business, Grafton Recruitment, Milestone and Brightwork.
10. The results of an impairment review showed that impairments to goodwill were required in the Recruitment GB and PeoplePlus cash-generating units of GBP14.3m and GBP8.0m respectively. Further details are given in note 8.
6 Tax expense
The tax credit on the loss for the year consists of:
2018
2019 Restated
GBPm GBPm
-------------------------------------------- ----- ---------
Corporation tax
UK corporation tax at 19.00% (2018: 19.00%) - 0.5
Adjustments in respect of prior years (1.7) (0.1)
-------------------------------------------- ----- ---------
UK current tax (credit)/charge (1.7) 0.4
-------------------------------------------- ----- ---------
Deferred tax
Timing differences arising in the year (1.6) (2.4)
Adjustments in respect of prior years (0.8) 0.2
-------------------------------------------- ----- ---------
UK deferred tax credit (2.4) (2.2)
-------------------------------------------- ----- ---------
Total UK tax credit for the year (4.1) (1.8)
-------------------------------------------- ----- ---------
The net "adjustments in respect of prior years" credit of GBP2.5m (current GBP1.7m credit, deferred GBP0.8m credit) arose largely from the use of trading losses to reduce previously estimated tax liabilities (current) and the recognition of trading losses available to offset current and future profits generated by the Group's subsidiaries in Ireland.
The credit can be further analysed by division and by underlying/non-underlying trading as follows:
2018
2019 Restated
GBPm GBPm
--------------------------------- ----- ---------
Recruitment GB (2.6) (0.6)
Recruitment Ireland (0.5) -
PeoplePlus (0.8) (1.2)
Staffline Group (0.2) -
--------------------------------- ----- ---------
Total UK tax credit for the year (4.1) (1.8)
--------------------------------- ----- ---------
Underlying trading (1.7) 6.6
Non-underlying trading (2.4) (8.4)
--------------------------------- ----- ---------
Total UK tax credit for the year (4.1) (1.8)
--------------------------------- ----- ---------
The tax credit for the year, as recognised in the statement of comprehensive income, is lower than the standard rate of corporation tax in the UK of 19.00% (2018: lower than the 19.00% standard rate). The differences are explained below:
2019 2018
GBPm GBPm
Total Total
------------------------------------------ ------ ------
Loss for the year before taxation (48.1) (17.8)
Tax rate 19.0% 19.0%
-------------------------------------------- ------ ------
Tax on loss for the year at the standard
rate (9.1) (3.4)
-------------------------------------------- ------ ------
Effect of:
Depreciation and software amortisation
charge in excess of capital allowances - (0.3)
Amortisation of intangible assets arising
on business combinations 4.2 0.3
JSOP charges not taxable - 0.2
Change in deferred tax rate to 17.00% 0.2 -
Expenses not allowable 0.9 0.9
Adjustments in respect of prior years (2.7) 0.3
Tax losses available 2.4 0.2
Actual tax credit (4.1) (1.8)
-------------------------------------------- ------ ------
On underlying (loss)/profit (1.7) 6.6
On non-underlying loss (2.4) (8.4)
-------------------------------------------- ------ ------
Actual tax credit (4.1) (1.8)
-------------------------------------------- ------ ------
Effective total tax rate for the year 8.5% 10.1%
-------------------------------------------- ------ ------
The total tax credit for the year of GBP4.1m (2018: GBP1.8m), which amounts to 8.5% (2018: 10.1%) of the loss for the year, relates principally to the recovery of UK tax losses in previous years and on the movement of deferred tax balances. The Group has no current Corporation Tax liability in respect of either the current or prior years and as a result is anticipating a refund of amounts that were paid on account. An element of losses incurred during 2018 will be set against taxed profits in previous years, which will also result in a refund. Remaining tax losses carried forward in the Recruitment GB and PeoplePlus divisions have not been recognised as a deferred tax asset.
The amortisation charge relating to intangible assets arising on business combinations is not deductible under UK corporation tax and is therefore added back to taxable profits. A deferred tax liability is recognised in respect of consolidated intangible assets. This liability is reduced each year in line with the amortisation charge, giving rise to a deferred tax credit each year. No deferred tax is recognised on JSOP charges. An element of acquisition-related expenses and HMRC settlement costs incurred in 2018 were also treated as non-deductible.
A reduction in the UK corporation tax rate from 19% to 17% (effective from 1 April 2020) was substantively enacted on 6 September 2016, and the UK deferred tax asset/(liability) as at 31 December 2019 has been calculated based on this rate. In the 11 March 2020 Budget, it was announced that the UK tax rate will remain at the current 19% and not reduce to 17% from 1 April 2020. This will have a consequential effect on the Group's future tax charge.
No material tax charges arise on overseas profits or losses and accordingly no disclosures relating to overseas tax are included within the financial statements.
The current tax asset at the end of 2019 of GBP5.3m (2018: asset of GBP2.3m) can be analysed as follows:
2018
2019 Restated
GBPm GBPm
---------------------------------------------------- ----- ---------
(Asset)/Liability at the beginning of the year (2.3) 3.4
(Credit)/Charge on profits for the year (1.7) 0.4
R&D tax credit (0.2) -
Paid in the year (net of repayments) (1.1) (6.4)
Liabilities arising on business acquisitions/others - 0.3
---------------------------------------------------- ----- ---------
Asset at the end of the year (5.3) (2.3)
---------------------------------------------------- ----- ---------
Balance of 2018 tax year (assets) (4.8) (2.2)
Balance of 2017 tax year (assets) (0.4) -
Balance of 2016 tax year (assets) (0.1) (0.1)
---------------------------------------------------- ----- ---------
Asset at the end of the year (5.3) (2.3)
---------------------------------------------------- ----- ---------
7 Earnings per share and dividends
The calculation of basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year, after deducting any shares held in the Joint Share Ownership Plan or "JSOP" - "own shares" (2019 and 2018 year-end 1,140,400 shares). The calculation of the diluted earnings per share is based on the basic earnings per share as adjusted to further take into account the potential issue of ordinary shares resulting from share options granted to certain Directors and share options granted to employees in 2017, 2018 and 2019 under the SAYE scheme.
Details of the earnings and weighted average number of shares used in the calculations are set out below:
Basic Diluted
Basic Restated Diluted Restated
2019 2018 2019 2018
------------------------------------------- ------- --------- ------- ---------
Loss from continuing operations (GBPm) (44.0) (16.0) (44.0) (16.0)
Weighted average number of shares (000) 45,669 26,167 45,669 26,167
Loss per share from continuing operations
(p) (96.3)p (61.2)p (96.3)p (61.2)p
------------------------------------------- ------- --------- ------- ---------
Underlying (loss)/earnings from continuing
operations (GBPm) (4.1) 23.1 (4.1) 23.1
Underlying (loss)/earnings per share
(p)* (9.0)p 88.3p (9.0)p 88.3p
------------------------------------------- ------- --------- ------- ---------
* Underlying earnings after adjusting for 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
The weighted average number of shares (basic) has been increased by 20,642,000 (2018: increased by 546,000) shares to take account of the effect of the placing and open offer in July 2019 whereby 40,986,097 new ordinary shares were issued.
Dividends
During the year, Staffline Group plc paid dividends of GBPnil (2018: GBP7.1m) to its equity shareholders:
2019 2018
2019 2018 per share per share
GBPm GBPm (p) (p)
------------------------------------------ ----- ----- ---------- ----------
Interim 2019: paid November 2019 (Interim
2018: paid November 2018) - 3.0 - 11.3p
Final 2018: paid July 2019 (Final 2017:
paid July 2018) - 4.1 - 15.7p
------------------------------------------ ----- ----- ---------- ----------
Total paid during the year - 7.1 - 27.0p
------------------------------------------ ----- ----- ---------- ----------
No final dividend for 2019 has been proposed (2018: GBPnil).
8 Goodwill
Gross carrying amount by division
Recruitment Recruitment
GB Ireland PeoplePlus Total
Gross carrying amount GBPm GBPm GBPm GBPm
------------------------------------ ----------- ----------- ---------- -----
At 31 December 2018 (reported) 53.8 5.5 57.0 116.3
------------------------------------ ----------- ----------- ---------- -----
Prior year adjustment (note 3) 0.7 0.2 - 0.9
------------------------------------
At 31 December 2018 (restated) 54.5 5.7 57.0 117.2
------------------------------------ ----------- ----------- ---------- -----
Impairment adjustment
At 1 January 2019 - - - -
Charged in the year 14.3 - 8.0 22.3
------------------------------------ ----------- ----------- ---------- -----
At 31 December 2019 14.3 - 8.0 22.3
------------------------------------ ----------- ----------- ---------- -----
Net book amount at 31 December 2019 40.2 5.7 49.0 94.9
------------------------------------ ----------- ----------- ---------- -----
Net book amount at 31 December 2018 54.5 5.7 57.0 117.2
------------------------------------ ----------- ----------- ---------- -----
The goodwill attributable to the Group's operations in Ireland, which was previously included within the Recruitment division, is now shown separately.
Impairment - Goodwill
Management consider there to be three cash-generating units ("CGU"), being Recruitment GB, Recruitment Ireland and PeoplePlus, in line with the operating segments defined in note 4. These three cash-generating units have been tested for impairment.
In the prior year, only two CGU's were identified, with Recruitment GB and Recruitment Ireland being taken together. Whilst the cash flows generated from acquisitions cannot be separately identified, they are all allocated to the three CGU's and the goodwill relating to each acquisition is similarly allocated.
The recoverable amount of goodwill was determined based on a value-in-use calculation, using forecasts for 2020-22, followed by an extrapolation of expected cash flows over the next two years with a 0% growth rate for each cash-generating unit. Pre-tax discount rates of 11.7% for Recruitment GB, 10.9% for Recruitment Ireland and 11.7% for PeoplePlus (2018: 11.0% for all CGU's) were used based on the weighted average costs of capital for each operating segment.
The recoverable amounts of the CGU's, having considered the higher of value-in-use and fair value less costs to sell, were for GBP71.4m Recruitment GB, GBP38.0m for Recruitment Ireland and GBP56.8m for PeoplePlus, all being value-in-use.
The results of the impairment review performed showed headroom in the Recruitment Ireland cash-generating unit and accordingly no impairment noted, but that impairments to goodwill were required in the Recruitment GB and PeoplePlus CGU's of GBP14.3m and GBP8.0m respectively (2018: GBPnil and GBPnil, respectively). The review also indicated that no provision is required to write down the carrying value of other intangible assets and tangible fixed assets (2018: GBPnil).
In making the assessment of the recoverability of assets within each CGU a number of judgements and assumptions were required.
The critical judgement relates to the determination of the CGU's. Whilst there are individual legal entities within the three segments, they are operated and reviewed as single units by the Board of Directors. Each operating segment has its own management team and head office. The Group's strategy, historically and going forward, has been to integrate new acquisitions into the main trading entities within each operating segment.
The key estimates in determining the value of each CGU are:
1. The discount rate. In the calculations we have utilised a pre-tax discount rate of 11.7% for Recruitment GB, 10.9% for Recruitment Ireland and 11.7% for PeoplePlus and a terminal growth value of 0%. The calculations highlighted an impairment of GBP14.3m for Recruitment GB, headroom of GBP22.8m for Recruitment Ireland and an impairment of GBP8.0m for PeoplePlus. A 1% increase in the discount rates increases the impairment to GBP20.1m for Recruitment GB, reduces headroom to GBP19.5m for Recruitment Ireland and increases the impairment to GBP12.8m for PeoplePlus.
2. The achievability of the forecasted future cash flows. There is an inherent uncertainty regarding the achievability of forecasts, as there are macro-economic factors outside of the Group's control. A sustained underperformance of 10% increases the impairment to GBP21.5m for Recruitment GB, reduces headroom to GBP19.0m for Recruitment Ireland and increases the impairment to GBP13.7m for PeoplePlus. A sustained underperformance of 60% would be required before any impairment was necessary to the goodwill allocated to Recruitment Ireland.
The impairment review was also performed using forecasts, adjusted for the impact of the COVID-19 pandemic, which is classed as a non-adjusting post-balance sheet event, and using the same discount rates. The results showed headroom in the Recruitment Ireland cash-generating unit of GBP4.6m and that further impairments to goodwill and related assets would have been necessary, had this been an adjusting post-balance sheet event, of GBP35.3m for Recruitment GB and GBP25.8m for PeoplePlus.
9 Property, plant and equipment
Land and Computer Fixtures Motor
buildings equipment and fittings vehicles Total
Gross carrying amount GBPm GBPm GBPm GBPm GBPm
------------------------------- ---------- ---------- ------------- --------- -----
At 1 January 2018 5.2 9.1 1.9 0.1 16.3
Additions 0.4 2.9 0.4 - 3.7
Acquired on business
combinations - 0.3 0.2 0.1 0.6
Disposals - (1.7) - - (1.7)
------------------------------- ---------- ---------- ------------- --------- -----
At 31 December 2018 (reported) 5.6 10.6 2.5 0.2 18.9
------------------------------- ---------- ---------- ------------- --------- -----
Transition to IFRS 16
Leases (note 15) 9.6 0.4 - - 10.0
At 1 January 2019 15.2 11.0 2.5 0.2 28.9
Additions 1.6 2.2 0.1 - 3.9
Disposals (1.2) (0.2) (0.3) - (1.7)
------------------------------- ---------- ---------- ------------- --------- -----
At 31 December 2019 15.6 13.0 2.3 0.2 31.1
------------------------------- ---------- ---------- ------------- --------- -----
Depreciation
At 1 January 2018 2.1 5.9 0.5 0.1 8.6
Charged in the year -
operating 0.5 1.5 0.6 0.1 2.7
Charged in the year -
impairment* 0.5 0.2 - - 0.7
Disposals - (1.7) - - (1.7)
------------------------------- ---------- ---------- ------------- --------- -----
At 31 December 2018 (reported) 3.1 5.9 1.1 0.2 10.3
------------------------------- ---------- ---------- ------------- --------- -----
Prior year adjustments
(note 3) - 0.2 0.8 - 1.0
------------------------------- ---------- ---------- ------------- --------- -----
At 31 December 2018 (restated) 3.1 6.1 1.9 0.2 11.3
------------------------------- ---------- ---------- ------------- --------- -----
Charged in the year -
operating 2.9 2.2 0.5 - 5.6
Charged in the year -
impairment** 0.5 - - - 0.5
Disposals (0.5) (0.2) (0.2) - (0.9)
------------------------------- ---------- ---------- ------------- --------- -----
At 31 December 2019 6.0 8.1 2.2 0.2 16.5
------------------------------- ---------- ---------- ------------- --------- -----
Net book value
------------------------------- ---------- ---------- ------------- --------- -----
At 31 December 2019 9.6 4.9 0.1 - 14.6
------------------------------- ---------- ---------- ------------- --------- -----
At 31 December 2018 (restated) 2.5 4.5 0.6 - 7.6
------------------------------- ---------- ---------- ------------- --------- -----
** The impairment of right-of-use assets relates to onerous leases
* The impairment charge of GBP0.7m in 2018 relates to the reorganisation of the PeoplePlus division
In the current year, the Group, for the first time, has applied IFRS 16 Leases. The date of initial application of IFRS 16 for the Group is 1 January 2019. The Group has applied IFRS 16 using the modified retrospective approach, without restatement of the comparative information. In respect of these leases, which were previously treated as operating leases, the Group has elected to measure the carrying value as if the Standard had been applied since the commencement date, but discounted using the Group's incremental borrowing rate at the date of initial application. Right- of-use assets, principally property related assets, comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.
Additional information on the right-of-use assets by class of assets is as follows:
Depreciation
Carrying amount expense Impairment
----------------- --------------- ------------ ----------
Office buildings 7.6 (2.5) (0.5)
IT equipment 0.3 (0.1) -
----------------- --------------- ------------ ----------
7.9 (2.6) (0.5)
----------------- --------------- ------------ ----------
10 Leases
Lease liabilities are presented in the statement of financial position as follows:
2019 2018
GBPm GBPm
------------ ----- -----
Current 2.6 -
Non-current 5.8 -
8.4 -
------------ ----- -----
The Group has leases for its operational and administrative offices, and some IT equipment. With the exception of short-term leases and leases of low-value underlying assets, each lease is reflected on the balance sheet as a right-of-use asset and a lease liability. The Group classifies its right-of-use assets in a consistent manner to its property, plant and equipment (see Note 9).
Unless there is a contractual right for the Group to sublet the asset to another party, the right-of-use asset can typically only be used by the Group. Leases are either non-cancellable or may only be cancelled by incurring a substantive termination fee. Some leases contain an option to extend the lease for a further term. The Group is prohibited from selling or pledging the underlying leased assets as security. For leases over office buildings the Group must keep those properties in a good state of repair and return the properties in their original condition at the end of the lease. Further, the Group must insure items of property, plant and equipment and incur maintenance costs on such items in accordance with the lease contracts.
The table below describes the nature of the Group's leasing activities by type of right-of-use asset recognised on the balance sheet:
Range No of leases
No of right-of-use of remaining Average remaining with extension
Right-of-use asset assets leased term (years) lease term options
------------------- ------------------ ------------- ----------------- ---------------
0.2 -
Office building 85 15.1 2.7 12
0.2 -
IT equipment 8 4.8 2.1 -
------------------- ------------------ ------------- ----------------- ---------------
The lease liabilities are secured by the related underlying assets. Future minimum lease payments at 31 December 2019 were as follows:
Minimum lease payments due
------------------ -----------------------------------------------------------
Within After
one year 1-2 years 2-3 years 3-4 years 5 years Total
------------------ --------- --------- --------- --------- -------- -----
31 December 2019
Lease payments 2.8 1.9 1.2 0.7 2.3 8.9
Finance charges (0.2) (0.1) (0.1) - (0.1) (0.5)
------------------ --------- --------- --------- --------- -------- -----
Net present value 2.6 1.8 1.1 0.7 2.2 8.4
------------------ --------- --------- --------- --------- -------- -----
31 December 2018
Lease payments 3.2 2.8 1.9 1.2 2.7 11.8
Finance charges (0.2) (0.1) (0.1) (0.1) (0.1) (0.6)
------------------ --------- --------- --------- --------- -------- -----
Net present value 3.0 2.7 1.8 1.1 2.6 11.2
------------------ --------- --------- --------- --------- -------- -----
Lease payments not recognised as a liability
The Group has elected not to recognise a lease liability for short term leases (leases with an expected term of 12 months or less) or for leases of low value assets. Payments made under such leases are expensed on a straight-line basis. In addition, certain variable lease payments are not permitted to be recognised as lease liabilities and are expensed as incurred.
The expense relating to payments not included in the measurement of the lease liability is as follows:
2019
GBPm
--------------------------- -----
Short-term leases 0.6
Leases of low value assets 0.5
1.1
--------------------------- -----
The Group had not committed to any leases that had not yet commenced.
Total cash outflow for leases for the year ended 31 December 2019 was GBP4.3m (2018: GBP5.4m).
11 Cash
2019 2018
Group Group
GBPm GBPm
-------------------------- ------ ------
Cash and cash equivalents 25.0 16.2
Restricted cash 12.7 -
-------------------------- ------ ------
Cash and cash equivalents and overdrafts consist of cash on hand and balances with banks only. At the year-end GBP25.0m (2018: GBP16.2m) of cash on hand and balances with banks were held by subsidiary undertakings; however, this balance is available for use by the Group.
Cash and cash equivalents amounting to GBP18.6m, as disclosed in the consolidated statement of cash flows comprises cash balances of GBP25.0m (2018: GBP16.2m), less overdrafts of GBP6.4m (2018: GBPnil).
Restricted cash relates to amounts held in escrow to satisfy the NMW remediation and financial penalties relating to historic HMRC National Minimum Wage breaches.
Long-term credit ratings for the four banks are currently as follows:
Standard
Fitch & Poor's Moody's
-------------------------- ----- --------- -------
Lloyds Banking Group plc A+ BBB+ A3
Bank of Ireland Group plc BBB BBB- Baa2
HSBC Holdings plc A+ A- A2
Royal Bank of Scotland plc A BBB Baa2
-------------------------- ----- --------- -------
The Group's headroom versus available committed bank facilities is as follows:
2019 2018
GBPm GBPm
----------------------------------------------- ----- -----
Cash at bank (as above) 25.0 16.2
Cash at bank held outside of facility* - (3.8)
Overdraft facility 18.6 25.0
Committed revolving credit facility unutilised 0.1 15.0
Banking facility headroom 43.7 52.4
----------------------------------------------- ----- -----
* Excluded from headroom in 2018.
At 31 December 2018, there was a GBP30.0m non-committed Accordion revolving credit facility available, which was removed as part of the amendments to the credit facilities on 26 June 2019.
12 Borrowings
Borrowings are repayable as follows:
2019 2018
Group Group
GBPm GBPm
----------------------------------------- ------ ------
In one year or less or on demand* 9.0 -
In more than one year but not more than
two years* 1.8 -
In more than two years but not more than
five years* 79.9 80.0
In more than five years* 2.2 -
Unamortised transaction costs - (0.8)
----------------------------------------- ------ ------
Total borrowings 92.9 79.2
----------------------------------------- ------ ------
* Ageing of balances above is shown excluding unamortised transaction fees
2019 2018
Group Group
GBPm GBPm
--------------------------------------- ------ ------
Split:
Current liabilities:
Bank overdraft 6.4 -
Lease liabilities 2.6 -
--------------------------------------- ------ ------
9.0 -
--------------------------------------- ------ ------
Non-current liabilities:
Revolving credit facility 78.1 80.0
Lease liabilities 5.8 -
Unamortised transaction costs - (0.8)
--------------------------------------- ------ ------
83.9 79.2
--------------------------------------- ------ ------
Total borrowings 92.9 79.2
--------------------------------------- ------ ------
Total borrowings excluding unamortised
transaction costs 92.9 80.0
Less: Cash (note 11) (25.0) (16.2)
--------------------------------------- ------ ------
Net debt 67.9 63.8
--------------------------------------- ------ ------
On 4 July 2018, the Group re-financed its outstanding borrowings and entered into a GBP120.0m committed revolving credit facility ("RCF") and a further uncommitted RCF (accordion option) of GBP30.0m. Carved out from the GBP120.0m committed RCF is an overdraft facility of GBP25.0m.
On 26 June 2019 the Group and its lenders agreed to certain amendments to the RCF. The lenders agreed to a waiver of all quarterly nancial covenant tests for the period ended 30 June 2019. The key amendments to the RCF were:
i) Relaxation of the September and December 2019 leverage covenants followed by a gradual reduction of the leverage covenant to net debt of less than 2x EBITDA by 31 December 2020;
ii) Restrictions on new material share, business and asset acquisitions until January 2021; iii) No dividends to be declared by the Company for the 2019 and 2020 financial years;
iv) Repayment and cancellation of revolving facility commitments by GBP10.0m on both 15 November 2019 and 15 November 2020;
v) Net proceeds of the July 2019 share issue in excess of GBP30.0m to be used to reduce, and cancel, the Credit Facilities available.
In consideration of these amendments, an amendment fee has been paid to the lenders and certain other changes were made to the Credit Facility (including the removal of the accordion option and the ability to request the lenders to extend the Credit Facility for an additional 12 months beyond July 2022). The expiry date for the Credit Facility remains in June 2022. The Company has agreed to pay the lenders an exit fee based on a percentage of the outstanding commitments when the Credit Facility expires or, if sooner, refinanced.
Interest accrues on the borrowings at between 1.4% and 2.0% plus LIBOR, depending upon the level of adjusted leverage as defined in the banking covenants.
On 24 July 2019, following the share issue, GBP6.8m was used to reduce, and cancel, part of the Credit Facilities. On 15 November 2019, in line with the amendments above, GBP10.0m was used to further reduce, and cancel, part of the Credit Facilities.
In December 2019, the Company agreed an amendment to the Credit Facilities which included:
i) The deferral of testing covenants at December 2019; and
ii) The agreement to waive any potential covenant breaches and defaults arising as a result of the prior year adjustments.
Subsequently, between January and May 2020, the Company agreed amendments to the Credit Facilities which included further deferrals of covenant testing and the reporting of such testing.
Following discussions with the lenders of the RCF, the Company and the lenders agreed on 26 June 2020 to a revised financing structure. The key elements of the new facilities are, a reduced RCF of GBP30.0m (previously GBP78.2m) and a Receivables Finance Facility ("RFF") (invoice discounting) of a maximum of GBP73.2m, and the removal of the overdraft facility of GBP25.0m.
The key terms of the new facilities are below, with other terms of the RCF remaining in place:
i) Expiry date July 2022 ii) Repayment and cancellation of RCF commitments by GBP10.0m on 31 July 2020;
iii) The RFF can initially be draw down against the receivables of the Recruitment GB division and Northern Ireland part of the Recruitment Ireland division;
iv) Interest on the RFF accruing at 3.50% plus Bank of England base rate; and
v) Minimum EBITDA and minimum liquidity covenants until a return to minimum leverage, interest and asset cover covenants in January 2022.
The Group also had available a separate GBP30.0m uncommitted, non-recourse, Receivables Financing Facility against certain customer receivables, and a number of separate Customer Financing arrangements whereby specific customer invoices are settled in advance of their normal settlement date. The balance funded under this Receivables Financing Facility at 31 December 2019 was GBP25.7m (2018: GBP27.3m) and the value of invoices funded under the Customer Financing arrangements was GBP35.1m (2018: GBP34.0m). Costs incurred in relation to these arrangements are charged to profit and loss as finance charges when incurred. After the year-end, this Receivables Financing Facility has been reduced to GBP25.0m.
13 Share capital
2019 2018
GBPm GBPm
-------------------------------------------------- ----- -----
Allotted and issued
68,930,486 (2018: 27,944,389) ordinary 10p shares 6.9 2.8
-------------------------------------------------- ----- -----
2019 2018
Number Number
----------------------------------------------------- ---------- ----------
Shares issued and fully paid at the beginning of the
year 27,944,389 27,849,389
Shares issued during the year 40,986,097 95,000
----------------------------------------------------- ---------- ----------
Shares issued and fully paid at the end of the year 68,930,486 27,944,389
----------------------------------------------------- ---------- ----------
All ordinary shares have the same rights and there are no restrictions on the distribution of dividends or repayment of capital with the exception of the 1,140,400 shares (31 December 2018: 1,140,400 shares) held at 31 December 2019 by the Employee Benefit Trust where the right to dividends has been waived.
On 6 June 2018, the Company issued 95,000 new ordinary shares of 10p each in the capital of the Company to satisfy obligations under the 2018 Joint Share Ownership Plan.
On 15 July 2019, a total of 40,986,097 ordinary 10p shares were issued by the Company, resulting in a total of 68,930,486 ordinary 10p shares now being in issue.
14 Cash flows from operating activities - consolidated
Reconciliation of loss before taxation to net cash inflow from operating activities
2018
2019 Restated
GBPm GBPm
------------------------------------------------------------------- ------ ---------
Loss before taxation (continuing operations) (48.1) (17.8)
------------------------------------------------------------------- ------ ---------
Adjustments for:
Finance costs 8.2 3.1
Depreciation, loss on disposal and amortisation - underlying 7.3 4.8
Depreciation, loss on disposal and amortisation - non-underlying 10.9 15.8
Impairment of goodwill 22.3 -
Cash generated before changes in working capital and
share options 0.6 5.9
Change in trade and other receivables 24.6 (12.2)
Change in trade, other payables and provisions (23.8) 25.3
Impact of foreign exchange loss on operating activities - -
------------------------------------------------------------------- ------ ---------
Cash generated from operations 1.4 19.0
------------------------------------------------------------------- ------ ---------
Employee cash-settled share options (non-cash charge/(credit)) - 1.0
Employee equity-settled share options 0.2 0.2
Settlement of cash-settled JSOP liabilities - (7.1)
------------------------------------------------------------------- ------ ---------
Net cash inflow from operating activities 1.6 13.1
------------------------------------------------------------------- ------ ---------
Movement in net debt
2019 2018
GBPm GBPm
---------------------------------------------------------- ------ ------
Net debt at 31 December 2018 (excluding transaction fees) (63.8) (16.8)
Transition to IFRS 16 Leases (note 15) (10.4) -
---------------------------------------------------------- ------ ------
Net debt at 1 January 2019 (excluding transaction fees) (74.2) (16.8)
---------------------------------------------------------- ------ ------
Loan repayments 1.9 4.4
New loans, including RCF drawdown - (36.3)
Lease payments, additions, disposals and interest 2.0 -
Change in cash and cash equivalents 2.4 (15.1)
---------------------------------------------------------- ------ ------
Net debt at 31 December 2019 (excluding transaction fees) (67.9) (63.8)
---------------------------------------------------------- ------ ------
Represented by:
Cash and cash equivalents (note 11) 25.0 16.2
Current borrowings (note 12) (6.4) -
Lease liabilities (note 10) (8.4) -
Non-current borrowings (note 12) (78.1) (79.2)
---------------------------------------------------------- ------ ------
Net debt including transaction fees (67.9) (63.0)
---------------------------------------------------------- ------ ------
Transaction fees (unamortised balance) - (0.8)
---------------------------------------------------------- ------ ------
Net debt at 31 December 2019 (excluding transaction fees) (67.9) (63.8)
---------------------------------------------------------- ------ ------
The movements in net debt, excluding transaction fees, can be further summarised as follows:
Lease Revolving Invoice
Cash Overdrafts liabilities Term loan credit facility discounting Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------ ---------- ------------ --------- ---------------- ------------ ------
Net debt as at 1 January
2018 31.3 - - (13.1) (35.0) - (16.8)
Cash flows during the
year (15.1) - - 4.4 (36.3) 13.6 (33.4)
Acquisition of businesses - - - - - (13.6) (13.6)
Transfer of balance
on refinancing - - - 8.7 (8.7) - -
-------------------------- ------ ---------- ------------ --------- ---------------- ------------ ------
Net debt at 31 December
2018 16.2 - - - (80.0) - (63.8)
-------------------------- ------ ---------- ------------ --------- ---------------- ------------ ------
Transition to IFRS 16
Leases - - (10.4) - - - (10.4)
-------------------------- ------ ---------- ------------ --------- ---------------- ------------ ------
Net debt at 1 January
2019 16.2 - (10.4) - (80.0) - (74.2)
-------------------------- ------ ---------- ------------ --------- ---------------- ------------ ------
Cash flows during the
year 8.8 (6.4) 3.2 - 1.9 - 7.5
Non-cash movements in
leases - - (1.2) - - - (1.2)
Net debt at 31 December
2019 25.0 (6.4) (8.4) - (78.1) - (67.9)
-------------------------- ------ ---------- ------------ --------- ---------------- ------------ ------
15 Changes in accounting policies
The application of IFRS 16 to leases previously classified as operating leases under IAS 17 resulted in the recognition of right-of-use assets, and lease liabilities, as summarised below:
31 December
2018 Impact of 1 January
Restated IFRS 16 2019
Balance sheet (extract) GBPm GBPm GBPm
----------------------------------- ----------- --------- ---------
Non-current assets
Property, plant and equipment 7.6 10.0 17.6
Total impact on assets 7.6 10.0 17.6
----------------------------------- ----------- --------- ---------
Current liabilities
Accruals - (0.3) (0.3)
Lease liabilities - 3.1 3.1
----------------------------------- ----------- --------- ---------
Non-current liabilities
Lease liabilities - 7.3 7.3
----------------------------------- ----------- --------- ---------
Total impact on liabilities - 10.1 10.1
----------------------------------- ----------- --------- ---------
Total impact on net assets (0.1)
----------------------------------- ----------- --------- ---------
Equity
Profit and loss account (restated) 43.3 (0.1) 43.2
----------------------------------- ----------- --------- ---------
Total impact on equity (0.1)
----------------------------------- ----------- --------- ---------
In terms of the income statement, the application of IFRS 16 resulted in a decrease in operating lease rental charges and an increase in depreciation and interest expense compared to IAS 17. During the year ended 31 December 2019, the impact of IFRS 16 on the Consolidated Statement of Comprehensive Income is summarised below:
Statement of comprehensive Operating Depreciation Interest Post-IFRS income (extract) year ended Pre-IFRS 16 lease rentals GBP'm GBP'm 16 31 December 2019 GBP'm GBP'm GBP'm ----------------------------- ----------- -------------- ------------- --------- --------- Revenue 1,076.7 - - - 1,076.7 Cost of sales (990.2) - - - (990.2) ----------------------------- ----------- -------------- ------------- --------- --------- Gross profit 86.5 - - - 86.5 Administrative expenses (127.5) 3.2 (3.1) - (127.4) ----------------------------- ----------- -------------- ------------- --------- --------- Operating loss (41.0) 3.2 (3.1) - (40.9) Finance cost (8.0) - - (0.2) (8.2) ----------------------------- ----------- -------------- ------------- --------- --------- Loss for the year before taxation (49.0) 3.2 (3.1) (0.2) (49.1) ----------------------------- ----------- -------------- ------------- --------- ---------
Of the total right-of-use assets of GBP10.0m recognised at 1 January 2019, GBP9.9m related to leases of property and GBP0.1m to leases of plant and equipment.
The table below presents a reconciliation from operating lease commitments disclosed at 31 December 2018 to lease liabilities recognised at 1 January 2019.
GBP'm
------------------------------------------------------------------- ------
Operating lease commitments disclosed under IAS 17 at 31 December
2018 15.2
------------------------------------------------------------------- ------
Short-term and low value lease commitments straight-line expensed
under IFRS 16 (0.7)
Effect of discounting (0.9)
Payments due under extension options (3.2)
Lease liabilities recognised at 1 January 2019 10.4
------------------------------------------------------------------- ------
32 Post balance sheet events
With the exception of the following, there were no events not disclosed elsewhere, between the balance sheet date of 31 December 2019 and the approval of these accounts on 29 June 2020, that are required to be brought to the attention of shareholders:
A number of Board changes occurred after the balance sheet date, as disclosed in the Corporate Governance Statement and Directors' Report.
As described in the Financial Review and in note 19, the Company agreed a revised financing structure with its lenders in June 2020, comprising a reduced revolving credit facility alongside a new receivables finance facility.
Following the HMRC investigation into the Group's compliance with the National Minimum Wage, as disclosed in the 2018 Annual Report, a Notice of Underpayment was issued by HMRC in February 2020, and the penalty was paid during March 2020. Remediation payments to workers were paid in February and March 2020. The Group continues to finalise some residual areas of self-assessment.
A reduction in the UK corporation tax rate from 19% to 17% (effective from 1 April 2020) was substantively enacted on 6 September 2016, and the UK deferred tax asset/(liability) as at 31 December 2019 has been calculated based on this rate. In the 11 March 2020 Budget, it was announced that the UK tax rate will remain at the current 19% and not reduce to 17% from 1 April 2020. This will have a consequential effect on the Group's future tax charge.
The COVID-19 outbreak is a current risk with uncertainty created in the global economy after the balance sheet date. Refer to the Executive Chairman's Statement for further details.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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