Staffline, the Recruitment and Training group, provides the following trading update.
The ongoing Brexit uncertainty is impacting the UK labour market and led to a number of customers transferring a significant volume of their temporary workforce into permanent employment to mitigate the risk of that labour market tightening. Typically, this reaction to uncertainty tends to reverse over time, but we expect it will continue to impact temporary worker demand throughout the current year.
A proportion of these “temp to perm” transfers have occurred in the higher margin driving sector, resulting in an overall margin dilution. In addition, we are seeing further challenges in the higher margin automotive sector and associated supply chain where reductions in demand have been greater than expected.
There has also been a slowdown in new contract momentum in the current financial year, which the Company largely attributes to the impact of the delay in publication of the 2018 Full Year results. The key outstanding matter in finalising the results relates to the Group’s historical compliance with National Minimum Wage Regulations 2015. This is a complex area and management, in conjunction with HMRC and supported by an independent advisor, are assessing the significant amount of historic data and transactions, which will then be subject to audit.
Notwithstanding these current headwinds, the Recruitment division is beginning to see the definitive benefits from the Company’s market-leading approach to worker engagement and digitally enabled candidate attraction. Management expects this strategy to result in increasing differentiation and to support future growth.
In PeoplePlus, the successful transition from a Work Programme provider to the UK’s leading skills and training company is almost complete. With c. 60% of 2020 revenues already contracted, the Company maintains a positive outlook for PeoplePlus in 2020 under its new operating model. However, performance in 2019 will be affected by continued delays in Apprenticeship new starts. This is partially as a result of the slow take up of the Apprenticeship Levy scheme nationally, but also a reflection of the current economic uncertainty. Sectors such as retail for example, are delaying Apprenticeships whilst store restructure programmes are completed, however management remains confident that this market is attractive, notwithstanding this timing effect. However, the other elements of PeoplePlus, which are expected to contribute c.85% of PeoplePlus revenue in 2020, continue to develop well.
The Group experiences seasonality in its trading and typically earns only approximately 15% of its earnings in the first quarter of the financial year. The April performance is therefore a key initial indicator as to the full year turn out, and with visibility of that trading, and as a consequence of the broad range of factors highlighted above, the Board now expects the Group to deliver adjusted EBIT in the range of £23 million to £28 million for the financial year ending 31 December 2019.