Staffline, the UK-based staffing and employability organisation, announced an update following its announcement earlier this year of an investigation relating to concerns over invoicing and payroll practices within its Recruitment division.

 In its update, the company said it would book higher costs related to a probe into its under-payment of workers.

The group was set to publish its full year 2018 results in January 2019, however Staffline delayed its results in a surprise announcement that spooked shareholders.

On 29 January 2019, allegations were raised by a third party to the group’s auditors in respect of invoicing and payroll practices within the group’s Recruitment division. A review was initiated which included the appointment of independent legal advisers to conduct an investigation, as well as instructing the group’s auditors to extend their scope of work.

The independent legal investigation delivered its key findings which has assisted the Board in assessing and defining the impact on the group’s profitability and existing forecasts.

“The Board remains confident that its policies in relation to these matters are appropriate,” the group stated. “However, one allegation concerned the group’s historical compliance with National Minimum Wage Regulations 2015.”

The group said that it has been engaging with HMRC in order to quantify underpayments made in the past to workers, over a number of years prior to 2018.

Potential underpayments identified by the group relate to a limited number of food production facilities and the payment for preparation time, which is generally the time spent donning workwear. A provision of £4.4 million had been made for estimated additional costs in the group’s accounts for the year ended 31 December 2018.

This provision was included as part of the £20 million of exceptional costs announced in the company’s trading update on 8 January 2019. However, as a result of legal advice, the Board has revised its estimate and deems it prudent to increase that charge by £3.5 million taking total exceptionals in the period to £23.5 million.

The additional provision is exceptional and is the only change against market expectations identified by the Board.

Once the audit process is complete, Staffline will release its preliminary results for the year ended 31 December 2018. At that point, the Board expects to report, subject to audit completion, an underlying trading performance for the year ended 31 December 2018 in line with expectations and maintains its expectations for the current financial year.

As previously announced, the group expects to report net debt of c.£63 million (unaudited) as at 31 December 2018. Furthermore, the group can confirm that, of the items behind the working capital increase at 31 December 2018, there has since been an improvement of approximately £10 million.

Having now clarified the expected financial impact on the group, the Board requested that suspension be lifted and trading in the company’s shares resumed with effect from today.

Following the update, Staffline Group shares returned from suspension and last traded at £849.10, up 26.73% on the day and 29.63% above the 52 week low of £655.00 set on 30 January 2019. Based on its current share price the company has a market value of £187.23 million.