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Staffline plans £41mln fundraising to cut debt as it slumps to 2018 loss

Staffline swung to a loss in 2018 after setting aside a £15.1mln provision for remediation and expected fines for underpaying workers.
The firm said Brexit uncertainty is hurting the UK labour market

UK recruiter Staffline Group PLC (LON:STAF) said it plans to raise £41mln through a share placing and open offer to cut debt as it posted a full-year loss.

Following discussions with lenders and shareholders, the company has proposed a share placing to raise up to £34mln and an open offer to raise £7mln at an issue price of 100p.

READ: Staffline scraps dividend as it plans to raise £37mln to cut net debt

Staffline said it believes the fundraise will be the best way to reduce debt, which grew to £63mln in 2018 from £16.5mln a year ago.

Staffline swings to full-year loss 

In a separate results statement, the group reported a statutory loss before tax of £9.6mln for the 2018 full year, compared to £24.1mln the prior year.

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.

Staffline’s shares were suspended for six weeks between January and March after PWC, its auditor, delayed the company’s annual results to investigate allegations that it had underpaid workers. The results were meant to be published in January.

The recruiter set aside £15.1mln to repay workers, pay an expected penalty from the HM Revenue & Customs and to cover its advisers’ fees.

Total revenue for the year rose by 17.7% to £1.1bn, boosted by a £166.8mln contribution from acquisitions.

Organic revenue, however, was up just 0.3% with its core recruitment division rising 1.9% but PeoplePlus falling 11.8% due to the winding down of the unit’s work programme.

Outlook 'remains challenging'

The group said its outlook for 2019 “remains challenging” but added that it is trading in line with revised market expectations after a weak start to the new financial year.

Staffline continues to expect underlying operating profits of £23mln-28mln for the year ending 31 December 2019. Net debt at year end is expected to be line with current market forecasts.

The firm said Brexit uncertainty is hurting the UK labour market and has led a number of its customers to transfer a significant volume of their temporary workforce into permanent employment to mitigate the risk of that labour market tightening.

It expects the uncertainty to continue to impact temporary worker demand throughout the current fiscal year. Staffline said there has also been a slowdown in new contracts in the current financial year, due to the impact of the delay in publication of the 2018 results.  

"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,” said chief executive Chris Pullen.

“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.”

Staffline shares fell 16% to 125p in morning trading. 

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