Staffline to raise up to £41m to cut debt; swings to annual loss

Staffline shares tumbled on Thursday as the recruiter announced that it was looking to raise £41m to cut debt and said it swung to a full-year loss.

The company plans to raise up to £34m in a placing with institutional shareholders and up to £7m in an open offer with qualifying shareholders, at 100p a share. All proceeds will be used to reduce net debt.

Staffline also released its belated results for the year to the end of December 2018, which showed it swung to a statutory pre-tax loss of £9.6m from a profit of £24.1m the year before. The group pointed to an increase in non-underlying charges, including a provision for remediation costs and financial penalties for failing to pay the National Minimum Wage, and the reorganisation of its PeoplePlus division.

Exceptional costs of £15.1m were recorded in relation to the historical non-compliance with National Minimum Wage regulations.

Meanwhile, revenue jumped 17.7% to £1.13bn, with growth of £166.8m from seven acquisitions during the year and the full year benefit of two acquisitions made in 2017.

Staffline said its outlook for this year remains "challenging" but, following a weak start to 2019, it is trading in line with revised market expectations.

"The board continues to expect the group to report underlying operating profits for the year ending 31 December 2019 in the range of £23-28m and, before proceeds of any equity capital raise, net debt at year end to be in line with current market expectations," it said.

The company said ongoing uncertainty about Brexit is denting 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 reverses over time, but we expect it will continue to impact temporary worker demand throughout the current year," it said.

Staffline shares were suspended for six weeks earlier this year while it investigated its accounting practices, amid "concerns" relating to invoicing and payroll practices in the recruitment division. Its full-year results were meant to be released in January but were delayed as the group's auditor investigated allegations of underpayment to workers.

Chief executive officer Chris Pullen said on Thursday: "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."

At 1055 BST, the shares were down 23% at 115p.