Staffline Group PLC (OSU.F) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Staffline Group Plc H1 Results Investor Presentation. [Operator Instructions] Before we begin, we'd like to submit the following poll. And I'm sure the company will be most grateful for your participation. I'd now like to hand over to the 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 2025 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 [indiscernible] with. 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 and distribution, supermarkets, et cetera. So household names are comprising that element of the revenues. And then Staffline Ireland, 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 the sector is facing. Just a sort of run-through, which you may have already read on the RNS this morning. The results -- financial results, all on track in line with expectations. Daniel will go through the details, some really interesting detail there. I mean, obviously, for me, earlier in the year, the disposal of PeoplePlus 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 5 years is likely to improve and to recover as the markets recover. So 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 very helpful and accretive to existing and holding shareholders. We've had strong trading cash flows for the last 6 months as we always do. And actually, Daniel will talk about the reduction -- further reduction in working capital. Now just on to our strategy and just a nod to the priorities 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 permanent fees are up over 20% in the 6 months to June 2025. And this has been a focus for Ireland is this has come from the Republic. 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 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 sheet and shareholder returns is an absolute focus for us here at the center.

Great. Thank you very much, Albert. Good morning, everyone. Very pleased to be presenting the half year results today. I'm going to now move on to the detailed financials. And I think as you'll see on this slide, that we will see that we've had a really successful H1 '25, notwithstanding the wider macroeconomic winds, whether that's globally or U.K.-wise and some of the new tax realities that both us and our customers 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 across the country who are really delivering an excellent service for our customers. So I'd like to focus on 3 items on this slide. And notwithstanding revenue going up, the real signal of our performance in half 1 is gross profit. 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 been -- have had negative comparatives. So we're really pleased to be able to present 6.1% increase in our gross profit. And secondly, and Albert alluded to this a little earlier on, we've been laser-focused on costs. As many of you know, have been following us over the last few years, we've been really focused on ensuring that the cost base 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 GBP 2.4 million to GBP 3.7 million and the conversion there from gross profit to operating profit increasing from 7.7% to 11.2%. 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 1. We'll be talking about half 2 in a moment when Albert goes through his operational review, 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 GBP 5.7 million of net debt. We always, at this seasonal point in the year, have net debt and usually at year-end net cash. This GBP 5.7 million of pre-IFRS 16 net debt is GBP 3.5 million 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. So in the first half of the year, there were GBP 2.7 million, which on the surface is GBP 0.6 million higher than last year. But last year, we had the interest rate cap, which we benefited from to the tune of GBP 0.9 million. So if you were to strip that out, just to analyze our gross finance costs, you'll see that this year's GBP 2.7 million, in which we have none of the cap income that finished in October last year. That GBP 2.7 million actually compares to GBP 3.0 million last year. So for me, that illustrates 2 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. So those gross costs, those gross finance charges coming down by GBP 0.3 million, I'm very pleased with and I'm very grateful to the finance teams that work alongside me. And thirdly, the financing strength of the group. The top right-hand box illustrates that we have GBP 66.5 million 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 covenant position of being only 0.4x EBITDA leverage and 17.1x 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 H2 and as I said a moment ago, beyond as well. 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 12 months, this is not a 6-month slide, it's the 12-month slide to effectively season to season to take the seasonality effect out of it. And you can see we've got 2 main movements in our -- and how we've managed the net debt. The first is generation of GBP 9.1 million worth of trading cash on the left-hand side in the first -- that first clump of dashed lines. And then on the right-hand side, the corporate activity. Albert has already referenced the disposal of PeoplePlus and also that enabling us to then do further share buybacks, delivering accretive value for 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 GBP 5.4 million of working capital investment for growth that will continue into the second half of this year. 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 PeoplePlus disposal, which has created now a pure-play recruitment platform that Staffline is with net proceeds of GBP 6.9 million that includes the GBP 2 million of deferred consideration that will come in future periods. As Albert said at the beginning, 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.

Excellent. Thank you, Daniel. The divisional results, really interesting, 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 the temp hours 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%, quite extraordinary and all credit to the management team for delivering that. Really important as well 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% 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 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 the first 6 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 needs 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 to give you some comfort on Ireland, is an improving trend at the end of quarter 1 -- sorry, quarter 2. Quarter 1, slightly lower. And then quarter 2, we're seeing an improving trend, particularly in the perm pipeline, which I will show in the next slide. Now looking at the market, starting with the market overall. Look, the U.K. recruitment market, if you know -- if you've been following the results, is in real -- 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. But Staffline's year-on-year exposure to the blue-collar recruitment business sector has shown 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 U.K. but also in the Republic and the Island of Ireland. Now specific to the second half is our contract win with -- that we announced in the first half. This was, as we believe it, 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. You can look at the details. But just to refresh your memories, it's an agency contract 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 completed the initial assessment. We've done -- we're in the process of engagement, and we are now looking at full implementation from August onwards. So none of this contract in terms of its impact on the business has been affected in H1. This is all to come for the second half and then in 2026 and '27. So finally, just 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 wins that we've had in the first half. The GB blue-collar business is looking very healthy with hours up for the half, 4.4% and expected to increase as that contract comes on stream. I've just -- I've talked about the permanent recruitment pipeline in Ireland. There's an improving trend there. So lots of confidence that, that will continue into the second half in Ireland. And then the disposal of PeoplePlus, just reminding you that this released capital tied up in working capital and in the business, and we've streamlined the group focusing on the 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 collar struggling. We've seen that there's a flight to quality now and where we have been positioned, which 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 of your questions. But as always, we're delighted to the questions that you may have. Thank you.

That's great. Albert, Daniel, thank you very much indeed for updating investors. [Operator Instructions] I'd like to remind you that a recording of this presentation, along with the slides and the Q&A will be available on Investor Meet 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.

All right. 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&A off the table? Or would you consider bolt-ons in adjacent staffing sectors? I think I'll answer that initially. Nothing is ever off the table. I think our strategy over the last 2 years is very evident. We speak about the strategy in the annual report and 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 take anything off the table. Albert?

Yes. I mean when you're hitting 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 historical metrics. So we will stick with organic growth, both from existing customers and also new customers. It's also -- 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 6 months.

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, as 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 contract 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 were 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, you saw the circa GBP 5 million worth of investments in working capital and the profits that those will start to generate. So that is the focus at the moment. Albert?

I mean we've always canvass 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 we listen, we canvass. We make sure that our strategic financial strategies are exposed to our shareholders and we have conversations. So in the sense that we're focusing on buybacks and have focused on buybacks, that's been very accretive, buying 1/4 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. So that was the correct strategy. as Daniel says, nothing is ever off the table. But at this point, that continues to be our strategy.

Yes. 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, and we both come from some white collar recruitment backgrounds, although very much comfort be 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 3 to 4 years from about 2% or 3% to now 9% or 10%. 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 us.

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 recruitment, 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 leverage our scale and our reach, and there's a win-win. In Ireland, as I said, the volumes are not as high. However, they do have a healthy segment of blue collar and minimum wage type labor in the social and health services in the local government 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 police service in the Republic of Ireland and in 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 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 yes, you're absolutely right. Adjacent services are very, very important to 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.

Thank you, Albert. Next question. I'm thinking about the problems HS2 have had with their labor suppliers. How much exposure do 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 yourselves 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 a variety of areas of construction, I would say the government's planning reforms and objectives and targets on housebuilding should be supportive to that. So we are positive on that, and it's an extra arrow in the bow that we have. So we see that as, again, further diversification. But in terms of the government strategies, we see that as positive for our...

We're exposed to these major projects, whether it's pipelines, oil pipelines, HS2, infrastructure, robot, housebuilding. We're exposed through our customers. Our customers are the prime contractors, and we help them manage their workforces. And where there's shortages, sure, we're part of the solution.

Thank you, Albert. Next question, how is automating warehouses with AI, et cetera, 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, et cetera? So it's very interesting. I myself attended a conference on robotics about 5, 6 weeks ago. We're very close to 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. We've seen the impact of AI on the white-collar sector in the last 2, 3 years where that's not been as impactful from an automation perspective in the blue collar sector. So I would say that's a 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 yes, we're watchful of that and working alongside our customers to see how that develops.

Yes. I mean this is a super interesting area, remembering that the majority of our temps are drivers, warehouse operative, security. These are human skills that aren't easily replaced or where we're seeing the risk of automation, for example, in driving, still very much an unknown and governments and regulators 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. And we've seen that in aviation, where planes still require and people expect a human expert in the cockpit despite the fact or most planes can fly themselves. So not that concerned in the sectors we're exposed to. Security is very much a human experience. So -- and warehouse operators, of course, automation is 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 terrific developments in technology.

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 PBT. How can we be sure a similar hidden profits warning isn't gone 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 or announcement in October and that was introduced in April '25 at the beginning of the year, things we were quite cautious. It was interesting seeing 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. But as we've seen the year progress for Staffline, the major new contract win that we announced on the 16th of May, alongside all the other measures that our management teams, both the senior management teams 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 16th of May. 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. 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 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 -- in all of our customers, the flight to quality 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. And in that respect, 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 our advantage in this current market.

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 ask investors to give you their feedback.

Thank you. Yes, just a reminder that the financial results, astonishing in the current climate with the headwinds that we've seen, tremendous cash flows, great shareholder returns on the buyback program that we've had over the last 18 months. 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 an 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 other businesses have had to shed staff, and they have delivered a tremendous performance. So a shout out to them and their management teams for achieving something quite striking and also bucking the trend. And it's all about relationships and 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'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'll now automatically redirect you for the opportunity to provide your feedback in order the company can better understand your views and expectations. This only take a couple of moments to complete but I'm sure will be greatly valued by the company. On behalf of the management team of Staffline Group plc, I'd like to thank you for attending today's presentation, and good morning to you all.