Staffline Group (STAF: LSE), the UK-based recruitment and training organisation, provided a trading update and outlook today.

The group pointed at challenges to trading in Q4 and the Board announced that it expects the group to deliver full year adjusted operating profit (being profits before interest, tax and non-underlying charges) for the period ending 31 December 2019 of approximately £10 to £12 million.

In its H1 results published in September 2019, the group said it expected to deliver full year adjusted operating profit of approximately £20 million.

Earlier this year, Staffline had issued two profit warnings in four months with this latest being the third profit warning of the year.

The company has faced uncertainty this year after it delayed the publication of its full year results. Staffline shortly thereafter launched an investigation over invoicing and payroll concerns in its recruitment division.

In the group’s recruitment division, Staffline said its trading performance during the fourth quarter has been below the Board's expectations, with lower than anticipated demand from end customers.

During November, customer demand was down approximately 16% from the prior year which the Board said reflects high levels of consumer uncertainty across the UK. The group added that while trading in December has improved, trading performance for the month is also anticipated to be below the Board's expectations.

Staffline noted that its candidate attraction platform means that Staffline now has access to approximately one million live candidates on its database compared to 230,000 this time last year. Furthermore, the group noted that worker engagement is at record levels leading to significantly reduced attrition. Further automation of the recruitment process in 2020 is planned, with Staffline adding that this will result in further improvements to customer service and a significant reduction in operating costs.

“Notwithstanding current market headwinds, the Board believes the Company's market-leading approach to worker engagement, its digitally enabled candidate attraction and its scale within the industry will result in increasing differentiation and underpins the company's future growth,” the group said.

“Furthermore, Staffline looks forward to a levelling of the competitive playing field anticipated through the introduction of a single labour market enforcement body,” Staffline stated. “In particular, the Board expects the unethical use of umbrella companies to be better regulated. The use of umbrella companies is widespread across our industry and generally disadvantages workers by exploiting legislative loopholes.”

In the group’s PeoplePlus division, the company said its transition from a Work Programme provider to a skills and training company is complete.

“Despite significant growth within the year, Q4 performance is expected to be below the Board's expectations, principally due to the impact of the general election purdah on short term procurement opportunities,” Staffline stated.

According to the group, following a first half of transition and multiple new contract implementations, the second half has evidenced the potential of the business with operating profit in each of October and November reaching £1 million.

“PeoplePlus has built a significant platform for future growth and with the majority of 2020 revenues already contracted, the company maintains a positive outlook for PeoplePlus in 2020 under its new operating model,” Staffline stated.

Staffline also announced a prior year restatement stemming from the accounting review it completed earlier this year. “The Board currently believes the associated impact was an overstatement of 2018 profit of approximately £4 million,” Staffline stated. “The potential for restatement is expected to be limited to the year ending 31 December 2018. The precise impact remains subject to audit.”

The company also made a separate announcement today regarding the appointment of Daniel Quint as Interim Chief Financial Officer, replacing Mike Watts who has left the group with immediate effect.

Chris Pullen, Chief Executive of Staffline commented on the group’s trading update, "It has been a most challenging year for Staffline. Despite this we have developed two robust market leading businesses which are well set as platforms for future growth. We remain optimistic about future potential of the group with the challenges of 2019 behind us."

The Board expects year end net debt to be approximately £50 to £55 million, in line with current market expectations.

“Staffline maintains a constructive relationship with its lenders and consequently the Board does not anticipate any covenant issues over the year end,” the company stated. “Furthermore, the company is considering certain strategic options which may significantly reduce net debt during H1 2020.”

Following the publication of its trading update today, Staffline set a new 52-week low when it reached £65.00. Over this period, the share price is down -93.02%. As of last trade shares last traded at £80.52 were down 24.04% on the day. Based on its current share price the company has a market value of £73.07 million.