Staffline Group (LSE:STAF) — H1 Results

0:01 Good morning, ladies and gentlemen, and welcome to the STAFFLINE GROUP PLC H1 Results Investor Presentation. Throughout today's recorded meeting, investors will be in listen only mode. Questions are encouraged and can be submitted at any time just using the Q and A tab situated on the right hand corner of your screen. Simply type in your questions at any time and press send. The company may not be in a position to answer every question received during today's call. However, the management team can review all questions submitted today and we'll publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. I'm sure the company would be most grateful for your participation. I'd now like to hand over to the

0:32 management team from STAFFLINE GROUP PLC, Daniel Albert. Good morning to you both. Good morning, everybody, and welcome to our presentation for the half year for this twenty twenty five year. I've got my CFO with me as usual, Daniel Quint, and without any further ado, we're going to go straight into the presentation, and thanks for joining. The first slide is really a slide that you with. It's it shows the reach and the scale of the business, which is one of the most important underlying factors in achieving these results that we're announcing this morning. But, also, we've added some color there on the left hand side in terms of our exposure to the different sectors. And you can see that certainly in STAFFLINE, we've got quite a substantial exposure to a very defensive sector, food food and distribution, supermarkets, etcetera. So household names are are comprising that element of the of of the revenues.

1:33 And then STAFFLINE Island, also very resilient in terms of public sector exposure. We've got a steady stream of revenue from Ireland, and this just demonstrates in some respects why the business has remained steady in the headwinds that that that the sector is facing.

1:53 Just a sort of run through which you may have already read on the RNS this morning. Results financial results all on track in line with expectations. Daniel will go through the details, some really interesting detail there. I I mean, obviously, for me, earlier in the year, the disposal of People Plus was a game changer for the business in terms of now a focus on recruitment at a perfect time in the cycle when recruitment, I think, in the next five years is is likely to improve and to recover as the markets recover. So a a pure play recruitment platform, that's what STAFFLINE is now, that is the game changer in terms of the early actions in this year. And that has enabled a much stronger balance sheet in terms of our the cash, which have further enabled share buybacks, which has been, you know, very helpful and accretive to existing and holding shareholders.

2:48 We've had strong trading cash flows for the last six months as we always do, and actually, Daniel will talk about the reduction further reduction in working capital. Now just onto our our strategy and and it's just a nod to the priorities that that that we're implementing in the business. The leadership teams are really focusing on the services where there's demand. And in that respect, the blue collar business focusing on organic growth, focusing on defensive sectors, utilizing and leveraging the group's scale and its delivery expertise. Obviously, in Ireland, you might be quite astonished to see their their permanent fees are up over 20 percent in in the in the six months to June 2025, and this has been a focus for Ireland is that this has come from The Republic.

3:45 And as you know, if you've been following us some years ago, we had a strategy to expand into The Republic Of Ireland, and it's really paying off. So, you know, the rest of those bullet points, I'm sure you're aware of, a good tight control of costs, continually looking at efficiencies. Daniel will show that in some of the bridges that he has on cash flows and, of course, the strong balance sheets and shareholder returns is an absolute focus for us here at the center.

4:15 Great. Thank you very much, Albert. Good morning, everyone. Very pleased to be presenting the half year results today. We're to now move on to the detailed financials. And I think, as you'll see on this slide, that we'll you can see that we've had a really successful H1 twenty five, notwithstanding the wider macroeconomic wins, whether that's globally or UK wise, and some of the new tax realities that both us and our customers are dealing with. I think to be able to present these results today is really a fantastic testament to the delivery of our management teams and all the members of STAFFLINE, all the employees of STAFFLINE the country who are really delivering an excellent service for our customers. So I'd like to focus on three items on this slide.

5:06 Notwithstanding revenue going up, the real signal of our performance in half one is gross profits. That's the fees we receive, up 6.1%. Those that know the recruitment sector will know that our peers, whether that be white collar or actually even in some blue collar areas of the sector, have had negative comparatives. So we're really pleased to be able to present 6.1% increase in our gross profits. And secondly, and Albert alluded to this a little earlier on, we've been laser focused on costs. As many of you will know have been following us over the last few years, we've been really focused on ensuring that the cost basis is absolutely structured to deliver top shareholder value here, and our fees have been able to convert successfully through to an underlying operating profit that has increased by 54%, increasing from 2,400,000 to $3,700,000 and the conversion there from gross profit to operating profit increasing from 7.7% to 11.2%.

6:12 And I think that's a really important indication of the combined effect of the success of top line fees as well as the control of our cost base that enables that flow through to operating profit. And we are very pleased with the half one. We'll be talking about half two in a moment when Albert goes through his operational view, and that will hopefully deliver continued success on the financials. Now coming to the financing and the balance sheet. So a few points to highlight here. Firstly, net debt. That's the middle box in the top layer there. That's £5,700,000 of net debt. We always, this seasonal point in the year, have net debt and usually at year end, net cash.

6:57 This £5,700,000 of pre IFRS 16 net debt is £3,500,000 less than last year. So in the consideration of all the growth that we've had, we are really pleased to further drive down the seasonal net debt as we've got here. The second point I'd like to touch on is finance charges, which is the top left box there. In the first half of the year, there were £2,700,000,

7:25 which on the surface is 0.6 higher than last year. But last year, we had the interest rate cap, which we benefited from to the tune of £900,000. So So if you were to stretch that out just to analyze our gross finance costs, you'll see that this year's £2,700,000 in which we have none of the the cap income that finished in October last year. That £2,700,000 actually compares to £3,900,000 last year. So for me, that illustrates two things. Firstly, yes, we've benefited from the reduction in the Bank of England base rate since August 2024 up until now, so it's reduced by 1% from 5.25 to 4.25. But what we've also done is keep a really tight control of our working capital, our cash management even in an environment where we're growing the business.

8:15 So those gross costs, those gross finance charges coming down by naught point three, I'm very pleased with and I'm very grateful to the finance teams that that work alongside me. And thirdly, the financing strength of the group. The top right hand box illustrates that we have £66,500,000 of financing headroom, which I think is a fantastic platform from which to move into the second half of the year and beyond 2025. And also in addition to that, our our covenant position of being only 0.4 times EBITDA leverage and 17.1 times of interest rate cover. As a collective, all these financing stats on this slide, I think, give us a really strong platform to drive forward into h '2 and, as I said a moment ago, beyond as well.

9:03 Just to follow on from that on the next slide, this is how we have generated or how the net debt, the pre IFRS 16 net debt has changed from June 2024 to June 2025. So the last twelve months, this is not a six month slide, it's the twelve month slide to effectively season to season to take the seasonality effect out of it. And you can see we've got two main movements in our and how we've managed the net debt. The first is generation of £9,100,000 worth of trading cash on the left hand side in the in the first that first clump of of dashed lines, and then on the right hand side, the corporate activity. Albert's already referenced the disposal of People Plus and also that enabling us to then do further share buybacks, delivering accretive value for shareholder holding shareholders, and then also we've talked about the growth in the business, that increase of 4.4% in working hours in GB, that comes with working capital investment. So you'll see that £5,400,000 of working capital investment for growth that will continue into the second half of this year.

10:12 And finally, the last item for me, just a reminder because this is a core element of our activity, our corporate activity in H1 of this year, is a reminder of the key stats of the People Plus disposal, which has created now a pure play recruitment platform. The STAFFLINE is with net proceeds of 6,900,000 that includes the $2,000,000 of deferred consideration that will come in future periods. As Albert said at the beginning, this that's been transformative for the group and has enabled us to focus on our recruitment activities, for which I'm going to hand back to Albert to take you through the operational review.

10:51 Excellent. Thank you, Daniel. The divisional results, really interesting. Some some variations between the GB Mainland and the island of Ireland. First of all, looking at the GB business, remember, this is a business focused mainly on blue collar, but with many other adjacent services, a full portfolio of services, but it's that 10 powers in those critical defensive sectors like food and distribution, logistics, and supermarkets that has driven the growth. The relationships that we have in that business has delivered an uplift of 8.5% in gross profit and underlying operating profit up 71%, you know, quite extraordinary and all all credit to the management team for delivering that.

11:40 Really important as well that that you note that the efficiencies are coming through. Last year, the conversion of fees to operating profit was much less than this year. This year, it's up 6.6% points to 18%

11:55 at a time when the sector is in a traditional cyclical low. So those are the financials for GB recruitment. Moving across the Irish Sea to Ireland, gross profit has been affected mainly by client demand in the in the North Of Ireland, Northern Ireland, that has been affected in somewhat by the headwinds in the economy, the global economy, and also the national insurance contributions and other taxes that have come. Clients pulled back slightly, and we noticed that in

12:26 the first six months across Northern Ireland. So that affected temp hours and temp demand. On the other hand, the swing to perm is quite extraordinary. The business has been focusing on expanding its footprint into The Republic Of Ireland. That is a larger market, a growing market, and the leadership is to be credited with a fantastic strategy, which is paying off now. So perm, mainly in The Republic Of Ireland, mainly in the public sector, has jumped 23% on last year. And what we see, just

12:59 to give you some comfort on Ireland, is an improving trend at the end of quarter one. So quarter sorry, quarter two. Quarter one slightly lower, and then quarter two we're seeing an improving trend particularly in in the perm pipeline, which I will show in the next slide. Now looking at the market, starting with the market overall, look. The UK recruitment market, if you know if you've been following the results, is in real is in real

13:29 you know, there's real challenges there with the broader macroeconomics really holding back the financials. You look at across the sector and double digit declines in gross profit right across the sector. And, of course, the government statistics in terms of unemployment or confidence has also been a tremendous headwind on the business, Unemployment increasing slightly and white collar recruitment, that's been impacted by candidate confidence, a lack of candidate confidence, and also business confidence to invest and expand.

14:01 But STAFFLINE's year on year exposure to the blue collar recruitment business has a sector showing some real resilience in the food, logistics, and supermarkets. And as I said, you can see from that graph how the permanent recruitment fees in Ireland is on an increasingly improving trend towards the second quarter. And all this is growth that's delivered through market leadership positions not only in The UK but also in The Republic and the island of Ireland.

14:30 Now specific to the second half is our contract win with that we announced in the first in the first half. This was, as we believe it, as as much as we're aware, the largest strategic partnership announced by a recruiter and a logistics firm in the period. So this was announced in May 2025, and you can look at the details. But just to refresh your your memories, it's an agency contract where where it's being outsourced, and we're taking full responsibility for up to 3,000 drivers, warehouse operatives, and some security. So we've and, Nick, we completed the initial assessment. We've done the we're we're in the process of engagement, and we are now looking at full implementation from August onwards. So none of this contract in in the terms of its impact on the business has been affected in h one.

15:26 This is all to come for the second half and then in 2026 and '27. So finally, just as as we always do, just summarizing on what we're looking in terms of the outlook and picking up on that contract that we announced and other other other wins that that we've that we've had in the first half. The GB blue collar business is looking very healthy with ours up for the half 4.4% and expected to increase as that contract comes on stream. I've just I've talked about the perm the permanent recruitment pipeline in Ireland. There's an

16:05 improving trend there, so lots of confidence that that will continue into the second half in Ireland. And then the Disposal People Plus, just reminding you that this released capital tied up in working capital and and and in the business, and we streamlined the group focusing on the core core business, creating a pure play recruitment platform. And these market share gains, we believe, will continue as we've seen some of our competitors stumble and some of our peers, particularly in blue

16:36 collar, struggling. We've seen that there's a flight to quality now and where we are being positioned, is a transparent publicly listed company fully and sustainably financed, we've seen increasing interest in our customers looking for strategic partnerships for us with us and to expand their footprint with us. So trading remains in line with the current management expectations. We are delighted with the first half's results. Hopefully, you've received much of the answers to any

17:07 of your questions, but as always, we're delighted to answer the questions that you may have. Thank you. That's great, Albert. Daniel, thank you you very much indeed for updating investors. Ladies and gentlemen, please do continue to submit your questions just using the Q and A tab situated on the right hand corner of your screen. But just while Daniel and Albert take a couple of moments to review your questions submitted already, I'd just like to remind you that the recording of this presentation, along with the slides and the Q and A will be available on the investment company platform. Daniel, as you can see, you've had a number of questions from investors throughout your presentation. Thank you to everybody for your engagement this morning. If I may just hand back to you, just ask you to read out the questions where it's appropriate to do so, and I'll pick up from you at the end.

17:45 Great. Thank you, as I normally do. So thank you, everyone, for listening to us this morning. I'm going to read out the questions, and then we will give you the answers. So the first question: You described the current platform as pure play recruitment. Is M and A off the table, or would you consider bolt ons in adjacent staffing sectors? I think I'll answer that initially. Nothing's ever off the table. I think our strategy over the last two years is very evident. We speak about the strategy in the annual report and our our regular updates to the market as well as these meetings, But I think probably you can see what we do by our actions, although we remain agile, we remain reviewing opportunities, whatever those may be, and I would never

18:37 take anything off the table, Albert. I don't know. Yes. I mean, you know, when when you when you're hitting a successful a successful innings, you don't change your strategy, and our strategy is very much organic. Organic is the highest returns for shareholders in terms of, you know, historical historical metrics, so we will stick with organic growth both from existing customers and also new customers. It's all it's also you know, I just want to emphasize that for us, there's a very, very strong link with organic growth and relationships. And so as opposed to buying relationships, we believe in developing relationships and growing relationships so that there's a full level of trust and confidence that exists in these partnerships. We like to call them partnerships because that's what they are, where we work with our clients, whether it's national insurance, whether it's other headwinds, we work with our clients to help solve their problems. And that's where we believe our greatest strength is, where we can get and drive that growth, and we've proved that, the business has proved that over the last six months.

19:42 Great. Thank you, Albert. Second question, can you comment on the rationale for not paying an interim dividend despite improved profitability and strong cash generation? Well, I'll start off and also hand over to Albert after I've given a few comments. As you would have seen in the presentation we just did now, we and we've announced obviously that new contracts win. We have real significant opportunities for organic growth, just as Albert just referred to, and we saw value at levels of share buybacks back when we bought, you know, down at 30p. And I think we everything is to be kept to monitor, but our near term opportunities are inorganic growth, as Albert just mentioned, and hence, saw the circa £5,000,000 worth of investments in working capital and the profit that that profits that those will start to generate.

20:37 So that's that is the focus at the moment for Albert to use. I mean, we've always canvassed and listened to our institutional shareholders, mainly in the large holders that we do have both on the board and not on the board to make sure that we're in sync. So, you know, we listen. We canvas. We make sure that our strategic financial strategies are are exposed to our shelves, and we have conversations. So in the sense that we're we're we're focusing on buybacks and have focused on buybacks, that's been very accretive, you know, buying a quarter of the of the company's equity back over the last few years has been at the levels that we've managed to achieve that very accretive and that's delivered substantial shareholder returns if you remained a holder.

21:22 So that was the correct strategy, as Daniel says nothing's ever off the table, but at this point that continues to be our strategy. Yeah. Next question, has exposure to white collar recruitment in Ireland increased group risk or does it create diversification benefits longer term? So in terms of white collar recruitment, which is usually in our case more perm related, it's good for cash. So we actually when we started here in the turnaround, one of our objectives, we both come from some white collar recruitment backgrounds, although very much comfortably slotted into the blue collar world. We thought we saw the opportunity to add white collar recruitment and some more perm. I think we've increased the perm element of gross profits over the last three to four years from about two or 3% to now nine or 10%.

22:11 That's good for cash, good for diversification, so we see that as a medium to long term continuing addition to the portfolio of services that we can provide. So I think that works very well for If I can just add to that, Ireland is not a geographic location where you get volumes in the same way as you do The Mainland in terms of temp and in terms of blue collar crew, it's just not the volume, you don't get the same volume. So first of all, the volumes we get in the GB business on The Mainland is extremely beneficial for both customers and us. We can get economies of scale, we can we can leverage our scale and our reach, and there's a win win. In Ireland, as I said, the volumes are not as high.

23:00 However, they do have a healthy segment of blue collar and minimum wage type labor in the social and health services, in the local governments, and in public sector, but most of the growth has come in the white collar divisions where we are putting back office people in the in the police service in The Republic Of Ireland and in the electricity board. We're doing consulting and putting interims into those businesses. So the white collar strategy is working on the Mainland here into GB, our white collar exposure is mainly in defense and technology, what I would call sort of like technology engineering, more towards the engineering side than the tech side, and, you know, whilst that's not booming, we expect that to stage a strong recovery given everything that's happening in the world, and we maintain that footprint for when the recovery comes. So, yeah, you're absolutely right. Adjacent services are very, very important for us. We will keep a monitoring watch on all these sectors and we do have now, as you say, a strong platform to which in which we can grow adjacent sectors.

24:13 Thank you, Albert. Next question. I'm thinking about the problems HS2 have had with their labor suppliers. How much exposure you have to construction? Do you see this as an attractive sector? And more generally, do you see opportunities for larger and more trusted suppliers like yourself to take market share from smaller operators? I mean, in the first instance, we do have exposure to construction through Datum, our RPO business, and I would say we to to a variety of areas of construction. I would say the government's planning reforms and objectives and targets on house building should be supportive to that. So we are positive on that, and it's an extra it's an extra adder in the bow that we have. So, yeah, we we see that as, again, further diversification, but in terms of the government strategies, we we see that as positive for our our our Yeah. You were exposed to these major projects, whether it's pipelines, oil pipelines, HS two, infrastructure, robot, house building.

25:17 We're exposed through our customers. Our customers are prime contractors and we help them manage their workforces and, you know, where there's shortages, sure, we're part of the solution. Thank you, Albert. Next question, how is automating warehouses with AI, etcetera, affecting your business for the coming years? Do you have plans to get additional revenue or extend business with the kind of jobs which will not be replaced in the near future, etcetera. So it's very interesting. I myself attended a conference on robotics about five, six weeks ago. We're very close to our our clients on this. I think the progress of robotics and automation, Sometimes the forecast of how quickly those things will happen is maybe a bit quicker than the way they actually happen.

26:05 We've seen the impact of AI on the white collar sector in the last two, three years where that's not been as impactful from an automation perspective in the blue collar sector. So I would say that's positive for blue collar, but we're absolutely mindful, and we work with our customers alongside them, as Albert mentioned earlier, working to see how we can make their operations more efficient, at the same time as ensuring they fulfill, to ensure that they can deliver to their customers. But, yeah, we're watchful of that and working alongside our customers to see how that develops. Yeah. I mean, is a super interesting area remembering that the majority of our temps are drivers, warehouse operative security.

26:55 These, yeah, these are human skills that aren't easily replaced or where we've seen the risk of automation, for example, in driving still very much an unknown and governments and regulators are very concerned about it. Just in cars. Can you imagine in lorries and articulated lorries, that seems to me a long way off, and we'll never lose the human element. So we've seen that in in aviation where planes still require and people expect a human expert in the cockpit despite the fact that most planes can fly themselves. So not that concerned in the sectors we're exposed to. Security is very much a human human experience, so and warehouse operators, of course. Automation's happening, but what we're seeing is the types of jobs are changing, but there's still a requirement for human oversight and intervention. So not that concerned in the short term, and actually very excited about how these tools will help us in the medium term. Tools like LinkedIn, game changers for recruitment, the recruiters always if any recruiters are on this presentation, you'll know it helps the recruiter as well as the customer in the market. So maybe the recruiters always benefit from these these terrific developments in technology.

28:17 Thanks, Albert. Fascinating question, this one. Management sounds very enthusiastic. However, they also sounded enthusiastic in February this year when they guided brokers to reduce FY 25 underlying PPT. How can we be sure a similar hidden profits warning isn't on the way? Well, the way I'd respond to that question is I think that's actually one of the benefits of being a PLC and being required to update the market when changes, positive or negative, are foreseen to impact the company. And why I say that is, of course, with the Employers National Insurance introduction in or announcements in October and that was introduced in April 25, at the beginning of the year, things we were quite cautious. It was interesting seeing in in how things would pan out, and certainly sentiment, as I think we'll all remember, in the early months of this year, 2025, was pretty unsteady, and I think in a general sense, it still is unsteady from a general macroeconomic sense.

29:21 But as we've seen the year progress for STAFFLINE, the major new contract win that we announced on the May 16 alongside all the other measures that our management teams, both the senior management teams and and the our financial and commercial teams and everyone across the entirety of STAFFLINE have delivered to both support our customers but also deliver value for our shareholders in ensuring that we keep costs focused and tight and have won business and grown market share, then our confidence has increased. And in terms of STAFFLINE's prospects, again, with that major new contract win announced on the May 16. But I think, to be honest, I think that is one of the benefits of because many of our competitors are private companies, and one is not necessarily able to understand the performance of those companies so regularly, whereas with a PLC and STAFFLINE, that is absolutely what you get.

30:23 So that, I think, is testament to the regularity that we've been updating the market in a public forum? So I would answer that. Just moving on to the next question. This possibly might be the last one. In terms of the competitive environment, you're clearly growing market share. Are there particular players you are winning contracts from or is it widespread? Look, first of all, good principle. We don't comment on specific individual customers or competitors. I mean, the market is is transparent in the sense that everybody knows who's up, who's down, and, of course, it's a cyclical business. It's a cyclical sector. But we we you know, in all of our customers, the flight to quality is is is very, very evident. And by quality, our customers are looking for transparency, for financial stability, for growth capacity on balance sheets, and for solutions, a full total workforce solution.

31:19 And in that respect, the the the leaderships have done themselves very proud in terms of demonstrating that, and also we've enjoyed the benefits of being publicly listed in the sense of our transparency and our governance, which has played to to our to our advantage in this current market. Yeah. So thank you very much, everyone, for listening to those questions. That's great, Daniel. Albert, thank you very much indeed. That does take care of all the questions submitted from attendees today. I know investor feedback is particularly important to you both. I'll shortly redirect those on the call to give you their thoughts and expectations. But perhaps just to wrap up with, just to finish with, Albert, if I may just come back to you for a couple of closing comments, and then I'll send investors to give you their feedback. Thank thank you. Yeah. Just just a reminder that, you know, the financial results astonishing in the current in the current climate with the headwinds that we've seen, tremendous cash flows, great shareholder shareholder returns on the buyback program that we've had over the last eighteen months.

32:21 And on top of that, the leadership teams have delivered new contracts and growth in new contracts while squeezing efficiencies out of existing operations. That's extraordinary achievement. And just a shout out to the GB CEO, Frank Atkinson, and our Irish CEO, Tina McKenzie, who've led these teams in difficult times where they've seen their competitors stumble and the and other businesses have had to shed STAFF, and they have delivered a tremendous performance. So shout out to them and their management teams for achieving and something quite startling and also bucking the trend. And it's all about relationships the the scale and the reach that the group has got in its geographic focus has enabled the expansion of organic growth at a time when we're we've we've got challenging headwinds. So thank you, Mark, and thank you, Daniel. Thank you. That's great. Thank you very much indeed to you both. Ladies and gentlemen, if I could please ask you not to close this session as we're now automatically redirect you for the opportunity to provide your feedback in order the company can better understand your views and expectations.

33:28 This only take a couple of moments complete, but I'm sure it'll be greatly valued by the company. On behalf of management team of STAFFLINE GROUP PLC, we'd like to thank you for attending today's presentation, and good morning to you all.