Staffline Group (STAF: LSE), the UK-based staffing and employability organisation, reported revenue for the full year ended 31 December 2018 of £1.12 billion, an increase of 17.7% compared with the previous year.

The company had delayed publication of its full year 2018 results which it had planned to publish on 30 January 2019.

Staffline said the day before its expected publication, group auditors received an anonymous email which made various allegations in relation to payroll and invoicing practices and associated VAT liabilities and accruals/provisions within its Recruitment division. Since the allegations were received, the group has carried out an ‘exhaustive’ investigation and review.

“Where issues have been identified, they have been rectified with the benefit of expert independent advice,” the company stated.

Last month, the group issued a profit warning due to the ongoing uncertainty surrounding the UK’s decision to leave the EU.

In its full year results, the company reported a statutory loss before tax of £9.6 million for the 2018 full year, compared to £24.1 million the year before.

The loss reflected a provision for penalties and remediation costs after failing to pay the national minimum wage as well as restructuring charges for the group’s training division, PeoplePlus.

Revenue growth was boosted by acquisitions which contributed £166.8 million from seven acquisitions during 2018 and the full year benefit of the two acquisitions made in 2017.

Staffline reported organic revenue growth of 0.3%, with Recruitment up 1.9% but PeoplePlus down 11.8% due to the wind down of the Work Programme (non-Work Programme revenues grew by 31%: organic growth of 20%).

The company also recorded exceptional costs of £15.1 million in relation to the historical non-compliance with the National Minimum Wage regulations which went to repay workers, pay an expected penalty from the HM Revenue & Customs and to cover its advisers’ fees.

“Recognising this difficult period in the group's circumstances, the Executive Directors have voluntarily waived all bonus entitlements in relation to 2018,” the company stated.

Chris Pullen, Chief Executive Officer of Staffline, commented, "The delay in the publication of our 2018 results has clearly been frustrating for all involved, but with the historical National Minimum Wage issues now resolved, we expect Staffline to return to normalised trading and to capitalise on its leading position in its key markets and deliver future growth.”

“Despite these challenges, 2018 was a year of transformation across both of our operating divisions as we set the foundations for the clearly identifiable future growth opportunities within both of these divisions,” Pullen said.

The company also reported net debt £63.0 million, an increase of £46.5 million in the year, which was primarily driven by £49.6 million spent on acquisitions. The company said it plans to raise up to £34 million in a placing with institutional shareholders and up to £7 million in an open offer with qualifying shareholders, at 100p a share with all proceeds to be used to reduce net debt.

In February 2018 Staffline made two acquisitions including UK Distribution Personnel Limited, a driver recruitment agency based in the South East of England, and M&B Staff Services, which was a trade only purchase. M&B Staff Services is a temporary labour and recruitment business based in Ireland.

In March 2018 Staffline Group announced that it completed the acquisition of Endeavour Group Limited ("Endeavour") and its subsidiary Vital Recruitment Limited.

In July 2018, the company completed the acquisition of two subsidiaries of Grafton Recruitment Ireland Holdings Limited: Grafton Recruitment Limited (Northern Ireland) and Grafton Recruitment Limited.

That same month, Staffline completed the acquisition of LDA, a UK-based Apprenticeship Levy provider from Learndirect Apprenticeships Limited.

In October 2018 the company acquired Passionate about People. Passionate about People comprises two companies: Omega Resource Group Limited, a UK provider of blue-collar, flexible, staffing solutions to the aerospace, automotive, construction, energy, logistics and manufacturing sectors, and Datum RPO Limited, a provider of recruitment process outsourcing solutions to blue-chip clients.

The company also announced a Board change. John Crabtree, Chairman, has advised the Board of his intention to step down as a Director of the Company and a succession plan will now be launched. The Board will appoint a further non-executive Director to the Board in the near term.

Revenue by Division

The company’s Recruitment division acquired and integrated six businesses during the year. These acquisitions contributed to the overall Recruitment division revenue growth of 20.9%.

In its PeoplePlus division, the company said it was close to completing the transformation away from the Work Programme to becoming the UK's leading skills and training provider.

“The acquisition of LearnDirect Apprenticeships has enabled Staffline to create the UK's leading Apprenticeship Levy business with significant progress in securing Apprenticeship Levy wins,” Staffline stated.

The division’s Work Programme contract ended in March 2019, following an agreement with the Department for Work and Pensions.

Staffline also added that significant exceptional costs have been incurred in 2018 relating to the structural reorganisation of the division into the UK's skills and training business, all of which have been charged in 2018. The Board said it does not anticipate any further exceptional costs in relation to the reorganisation of the PeoplePlus division.

Looking ahead, the Board continues to expect the Group to report underlying operating profits for the year ending 31 December 2019 in the range of £23-28 million.

“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,” Staffline stated. “Typically, this reaction to uncertainty reverses over time, but we expect it will continue to impact temporary worker demand throughout the current year. 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 group's outlook for 2019 remains challenging but, following a weak start to 2019, we are trading in line with revised market expectations,” the company stated.

Following the publication of its full year results and news of its loss and debt-cutting plan, Staffline Group traded at £117.73, down 21.51% on the day and 30.52% above the 52 week low of £90.20 set on 20 June 2019. Based on its current share price the company has a market value of £66.79 million.