Staffline, the recruitment and training group, is pleased to provide the following trading update for the year ended 31 December 2020 and the three months ended 31 March 2021.
· Q1 2021 trading ahead of management expectations provides increased confidence in the full year
· Underlying operating profit increased 133% in Q1 2021 year-on-year
· Significant restructuring of the Group undertaken in 2020, generating c.£15m in overhead cost savings
· Strong demand in the food distribution, e-commerce and logistics markets in H2 2020 drove robust performance, in spite of Covid-19
· The Board remains confident in the outlook for the Group and anticipates that trading for the current financial year is likely to be ahead of expectations
Full-Year 2020 Trading
As stated in the trading update issued on 1 February 2021, Staffline delivered a robust performance in 2020, despite the impacts of Covid-19 during the period. This was driven by actions taken by the Board to reduce costs and to focus on growth areas alongside significant progress in improving the Group's operational, financial and governance profile. In addition, demand for staff improved across H2 2020 in the food distribution, retail, e-commerce, and logistics sectors following the easing of the first lockdown. In PeoplePlus, the business quickly reduced its fixed cost base and moved to an online delivery model where possible, to continue to deliver skills and training services. The comprehensive restructuring programme that was implemented during 2020 resulted in all three of the Group's operating divisions returning to underlying operating profit in H2 2020.
In the year ended 31 December 2020, Staffline generated revenues of c. £928m1 (20192: restated £1,063m) delivering a c. 66% increase in underlying operating profit3 to c. £4.8m (2019: restated £2.9m) for continuing operations, which was ahead of expectations.
As noted in the 1 February 2021 trading update, the Board continues to evaluate its options in relation to the Group's finances.
Q1 2021 Trading
The Board is pleased to confirm that the momentum achieved in the second half of 2020 has continued into 2021, and the Group has made a strong start to the year. As a result, both revenues and underlying operating profit are ahead of expectations with all three businesses ahead of budget, resulting in an underlying operating profit for the Group for the quarter. Despite the hard national lockdown in the Republic of Ireland, Staffline Ireland also reported very positive momentum across the quarter.
Underlying operating profit
Average net debt*
*Presented on a Pre-IFRS16 basis and normalised to include £46.5m of deferred VAT as debt
In the three months ended 31 March 2021, gross profit decreased by only 6.1% compared to the same period in 2020, which preceded the impact of the pandemic, despite the national lockdown in 2021. The Group's gross margin percentage was slightly lower than Q1 2020 due to a temporary change in business mix in favour of higher volume essential food and wholesale distribution customers. This change of mix, combined with lower levels of higher margin permanent recruitment, held back the gross margin and we expect this to increase going forward.
Underlying operating profit increased by 133% in Q1 2021 compared to the previous year. Pre-IFRS 16 average net debt (which includes the deferred VAT creditor) reduced by £14.5m to £54.9 million as a result of initiatives implemented to generate additional cashflow. The Group has benefited from a £46.5m Covid-19 VAT deferral, which will be repaid in eight equal instalments of c. £5.8m from June 2021 to January 2022. The first instalment will be reduced by a c. £4.1m corporation tax refund.
Whilst the implementation of a third national lockdown at the start of 2021 resulted in certain sectors being adversely affected, the Group has continued to benefit from sustained demand from essential food and logistics services as well as e-commerce. Moreover, the Group is now also seeing increased activity from clients in some of those sectors most adversely impacted by the Covid-19 pandemic, such as manufacturing, retail and convenience foods, as these industries begin to re-open.
The Board is pleased with the progress achieved thus far in 2021 and is beginning to see the benefits of the loosening of lockdown restrictions coupled with the UK's successful vaccination roll-out programme, leading to improving market conditions.
The Group is seeing a stronger recruitment pipeline developing, and it is anticipated that PeoplePlus will benefit from the incremental increase in Government spending on re-skilling and transitioning the national workforce back into employment, following the end of the Furlough scheme.
The Board remains confident in its highly focused strategy, subject to strengthening its financial position, as noted above. As a market leader in many of its sectors and with a highly experienced and motivated senior leadership team, Staffline is well positioned to take advantage of the increasing opportunities arising from heightened business confidence.
Whilst there continues to be ongoing uncertainty relating to the pandemic, given the strength of Staffline's results in the first quarter of 2021 and the momentum being seen across the Group's core markets, the Board's confidence in the outlook for the year has increased. As a result and subject to no further unforeseen lockdown restrictions, the Board is confident that results for the current financial year are likely to be ahead of expectations.
Albert Ellis, Chief Executive Officer of Staffline, commented:
"There is no question that 2020 was one of the most challenging periods for both industry and commerce globally, but I'm delighted with the resilience demonstrated by our business. We've yet to be fully released from the constraints of the Covid-19 restrictions but we have already seen positive signs of recovery as we exited the first quarter of 2021."
"We have made significant progress restructuring our core business, much of which was completed in 2020, and we are now well-placed to capitalise on a number of exciting growth opportunities. Our market leading positions across food distribution, retail, e-commerce and the logistics markets have supported our recovery. As other parts of the UK economy begin to re-emerge, I am extremely confident in our ability to build on the momentum from the start of the year."
"I look forward to providing a further update when we publish our full year results in June."