Nakama Group plc (AIM: NAK), the AIM quoted recruitment consultancy working across the UK and Asia providing recruitment and related services for the web, interactive, digital media, IT and business change sectors, wishes to update shareholders on its current trading and financial condition.
Since the appointment of the new Chief Executive in April 2019, the Board has restructured the Group in order to reduce the cost base and it is expected that the benefits of this will be seen in the next financial year. Trading to date for the year ending 31 March 2020 has been broadly in line with management’s expectations but during the final quarter of the financial year the Group has encountered a number of challenges.
The impact of Coronavirus on revenues for both Hong Kong and Singapore have been immediately felt. As a result of the curbs on movement of people imposed by regional governments, firms are currently choosing to delay, in some cases indefinitely, the start dates of new hires until the full impact of the virus has been determined, directly impacting revenue recognition for the Group. Furthermore, recruitment activity generally has been immediately impacted by the effects of Coronavirus. Despite this immediate challenge, the Asia region, as a whole, remains highly attractive and it is expected that the future growth of the business will be focussed on developing the Group’s reach in region.
The UK remains a challenging recruitment environment and management believe that the changes to IR35, which come into force from April 2020, will have a short-term impact on the Highams business. Some of Highams’ clients are potentially looking to move payrolled contractors directly on to their payrolls thus reducing the Group’s monthly revenue stream. Furthermore, the uncertainty around IR35 has seen a short-term reduction in permanent hiring as companies assess their overall headcounts as April 2020 approaches.
At the start of the calendar year the decision was made to relocate the Nakama UK office to Caterham, where the Highams business is based. Management are pleased with the positive response this has received from employees to date. Furthermore, as a result of the implementation of the new robust performance management programme, the Managing Director of the Singapore office exited the business and has been replaced internally.
While headcount in the Group has decreased year on year, the Board believes that these reductions are necessary in order to bring the cost base in line with revenues to ensure the business continues to be profitable going forward.
The Group’s cash position remains severely constrained and the Company faces a short-term cash challenge until the full impact of the recent cost reductions has come through. The Board are considering several alternative sources of funding to improve the Group’s cash position, but the Group still urgently requires an injection of capital.
The Board will make further announcements in due course.