Staffline Group PLC (OSU.F) Earnings Call Transcript

Welcome to Staffline's 2020 Capital Markets Event. My name is Ian Lawson, and I'm the Executive Chairman having been in the role since April of this year. Thank you for taking the time to view our presentation. Whilst it is disappointing, we are unable to host an in-person meeting at this time as a result of the current COVID environment, we are delighted to be able to provide you with an update virtually. I'm particularly aware that there has been considerable focus on our current and future financial stability, so let me just reiterate where we are right now. We successfully refinanced the business in June, following a comprehensive analysis and financial review of the group, including factoring in the impact of COVID on the business. In addition, we stand to benefit from the government's recent announcements concerning the deferral of VAT. And we are in discussions about what that might look like, but agreement on a final position is some way off. This has provided some breathing space into early next year, allowing the group to focus on its peak trading period, alongside concentrating on improving our working capital and profitability for next year. So therefore, our aim over the next hour is to provide you with a better understanding of our strategic intent, to share with you both the near-term opportunities and articulate the future potential for Staffline. Whilst myself and Daniel have met with many of you before, we felt that it was now important to give you an opportunity to hear from our recently appointed CEO, Albert Ellis, and our divisional managing directors. In 2019, the business had some significant regulatory and business headwinds. However, over the last 8 months, we have implemented and continue to implement a number of transformational and strategic actions that have significantly strengthened our business and created a solid platform on which our team can now build upon. The divisions have now started to work together to ensure that we remove duplication and deliver on the potential that we believe Staffline clearly has. We continue to strengthen relationships with our blue-chip customers and clients, and this has been evidenced by our continued success in winning new mandates, alongside delivering high levels of customer service. I do believe that we have made significant progress over the last few months. And whilst, of course, there is still plenty more to do as we continue with our transformational plans, there are clear opportunities for this group to generate strong, sustainable profits in the future. So to briefly run through today's agenda. Firstly, you will hear from Daniel Quint, our group CFO, who will provide an update on the mitigating actions the company is taking on improving both our working capital and debt levels and run through potential operating targets for the business. Daniel will be followed by Tina McKenzie, the MD of our Ireland operations, who will talk about our market share in the region and the exciting growth opportunities for the business. Tina will be followed by Frank Atkinson, the MD of our Recruitment business on the U.K. Mainland, who'll provide an insight into why our clients choose us and how we ensure we maintain our high levels of customer service. Then our MD of PeoplePlus, Simon Rouse, will highlight some of the real opportunities his division has to support the government and make a real difference to the employability sector. And finally, Albert Ellis, our recently appointed group CEO, will provide an overview of the group's strategy. So Daniel, over to you.

Thank you, Ian. Good morning, everyone. Very nice to present to those of you who I've presented to before in the summer and then in our interims in September and to those of you who I haven't met as yet. So I'm really excited to be able to present the progress we've been making at Staffline regarding finance, and I'm going to run through some of that progress that we've been making. But before I do so, I'm just going to highlight some of the experiences that I've had in my career that were really useful for what we're doing at Staffline. I've recently been Interim CFO at Youngs, plc. But of course, the predominantly relevant experience is my 5 years at Robert Walters Group, where I was CFO for the U.K., Middle East and Africa as well as being international CFO of their RPO Resource Solutions. So it's with great excitement that I'm here at Staffline today. I'm going to run through the progress that we've made to date and then also look forward to the weeks and months and opportunities ahead. And I'm going to start by looking at activity we've taken on our balance sheet as well as looking at our internal controls, both regarding people and the processes. And of course, people have been really important, so what we've done around strengthening the team. And finally, I'm going to look at the future operating model, what we've already started working on, but what we will work towards as well. So firstly, just looking at something that's obviously really fundamental to the stability of the business that took place earlier this year, which is the completion of our refinancing, which concluded at the end of June this year. And that's enabled us to change the structure of our debt. So we have moved the revolving credit facility, down from GBP 103.2 million to what is now GBP 20 million. And that is a significant reduction in our covenant-based financing. Additional to that, we've introduced alongside that, a working capital facility of GBP 73.2 million, as a receivables facility, a traditional facility that a recruitment business would be using. So as you can see, we've moved from a full-revolving credit facility of that GBP 103.2 million down now to only GBP 20 million and then alongside an invoice discounting facility of GBP 73.2 million. The other benefit of that is that, that predominant receivables facility, the invoice-discounting facility of GBP 73.2 million, flexes according to our trading and, of course, very helpfully, the costs of that flex as we trade through. Second, I'd like to come on to the balance sheet slimming that we've done. Now you -- many of you will be familiar that VAT has been a benefit to us in terms of the deferral that occurred in March to June 2020, and there's GBP 45.8 million of that, that is now spread through as a result of the chancellor's announcement in September just gone to actually March 2022. And that, very importantly, allows more time for mitigating actions and the activity that we're taking to further slim our balance sheet. And what are we doing to achieve that? We have been reducing the contracts where low profitability is being delivered but with high levels of working capital being deployed. And that is really, really important exercise that we are undertaking in the last few months. To the extent that we've already served notice on one of our main contracts that will actually formally conclude at the end of the first week of March, where we were making a really low level of profit but deploying high levels of working capital. And we -- that exercise is ongoing, and we'll be taking that decision on some other contracts where the return is just not adequate. Additional to that, we have also reduced overdue debt. Overdue debt that's greater than 31 days has reduced by 78% since March to current times, and that equates to approximately GBP 15 million. Other activity that we've taken in that area is around further slimming of the debt. Another example of that is our reduction of our DSO by 4 days in the Recruitment businesses. So some really, really important work there around the efficiency of our balance sheet. I'd now like to move on to internal controls. So one area that I think the business has really benefited from is from further senior finance and governance hiring into our core resources in that area. So very importantly, we've recruited ahead of internal audit as well as strengthening compliance and governance teams within the group. This has allowed us also to focus on management and Board reporting, which has been enhanced over the last 9, 10 months, and this allows us to have greater visibility of not only what is going on in the business now but what is going to happen in the future, something that was quite challenging for the group over the last couple of years. And then another area of internal control that we've really worked very hard on, especially in light of the COVID reality, is cost controls and savings. So group-wide cost -- group-wide cost-sharing is an opportunity which we think there is some mileage in. So for example, IT, we have brought under the umbrella of one of our divisions but for the whole group. And we think that up to GBP 0.5 million worth of cost saving will be able to be achieved there. Other areas of scrutiny are property, and we'll be looking further into where we can further rationalize our property estate. We've also reduced headcount since the beginning of the year by 13%. And then in total, if you look at our overhead savings made since the beginning of Q -- since Q1 over to Q3, our run rate is about a 20% cost saving, which effectively equates to an annualized saving of about GBP 13 million. And finally, I'd like to come on to the target operating model that we have decided to land on and look forward to over the next year or 2. Firstly, I'll turn to the Recruitment businesses. In the first half of the year 2020, we achieved a gross profit of 7%. We believe that a medium-term target, a sensible medium-term target is 8%. And secondly, the gross profit to operating profit conversion rate, where we achieved 9% in the first half of the year, we believe that a sensible medium-term target is about 15%. And I say both those -- I set both those targets in light of what we've achieved in the first half of the year, even though that first half was a stabilizing half as well as including the COVID pandemic impact. And moving on to PeoplePlus. We achieved in the first half of this year a gross profit of 17%, and that is notwithstanding the difficult access to prisons as well as our skill centers, which I've talked about previously in some of our results presentations, and therefore, a medium-term target of 20% at gross profit level, I think, is really very achievable. And finally, for PeoplePlus' gross profit to operating profit conversion ratio, obviously, we didn't achieve any of that in the first half of this year because we actually made an underlying loss of GBP 2 million. But with the opportunities ahead, we believe that a medium-term opportunity of a 20% conversion is a very realistic opportunity. And finally, just a reminder of what our focuses is -- what our focus is going forward: number one, continued emphasis on a slimmer and more efficient balance sheet; number two, ongoing enhancements of our internal control regime; and finally, the delivery of the target operating model that I just spoke about. It's been really great presenting to you, and now I'll hand over to Tina. Thank you very much for listening.

Good morning, everyone. My name is Tina McKenzie, and I'm the Group Managing Director of the Staffline business in Ireland. I've been in Recruitment for 25 years, working with some of the biggest and best companies in the world. And this is my favorite. I launched Staffline Ireland in 2013. It was the first time Staffline properly entered this market, and we saw a rapid growth from 2013 right through to today. We've had great years of growth, cash-generative business and great profits, and I'm really proud of the company we've become in 7 short years. The 2 maps that you can now see show on the left-hand side, our branch network, and on the right-hand side is the position of our OnSites. You can see with our branch network that we're fully covered across the island from -- right from Balamina, right down to Cork across our new office in Galway and right through to Dublin on the Eastern side. The market in Ireland is worth in and around GBP 3 billion. In Northern Ireland, that's about GBP 500 million, and the Republic of Ireland is about GBP 2.5 billion. So whilst it's a small market, it's developing at a rapid pace, and it's very exciting. I'm just going to refer you back to the right-hand side of the map. And I think what's interesting is that where we have our OnSites is particularly penetrated heavily around the areas where we first started, and that is Belfast and Dublin. So definitely, part of our strategy will be to increase the number of OnSites around our other locations, as you can see on the left-hand side of the map. So weekly, we invoice around 300-plus customers. Over the year last year, we invoiced just over 1,000. On this slide, you can see the types of customers we invoice and work with. On the public sector, we have great recession-proof business, and that is really growing for us over the last 18 months. So you can see, for example, Causeway Coast and Glens, that's a local authority in Northern Ireland, where we provide everything from lifeguards to accountants to street straight sweepers. So looking at Belfast Health and Social Care Trust, we provide lots of staff right across the NHS and the hospitals in Northern Ireland. And we've seen, through COVID that, that particular part of our business has got extremely busy, where we provide the likes of both administrators as well as jobs like porters and also ancillary staff. Next is our OnSite business, and that's traditional blue-collar work usually centered around food and logistics. I picked out a few examples of the type of customers we partner with. You can see on here Moy Park, one of the largest distributors of chicken products in the United Kingdom, and we provide hundreds of staff to them right across their operation every week. Another one there you can see is Keelings. Keelings is in the Republic of Ireland and provides most of the salad products and fruit products that come in to the island of Ireland to be distributed out to retail. Next, you'll see our Specialist business. The first customer on there is the police service of Northern Ireland, and we would provide the police service with roles such as actors. So we recruit staff to be actors to help them with their training exercises. Next, you can see the Ulster Bank, and these roles are much more senior, so you're talking about project directors, accountants, actuars, very high level of staff into the bank right across the island. Moving on to our more traditional branch network business. That's where we're doing more with SME or one-off projects for various companies. And you can see on here there's DHL. Now DHL, we provide services right across the United Kingdom. So that's a nice link-up between GB and Northern Ireland. And we have 5 drivers and warehouse staff. And Sandvik, we provide engineering staff, which is more higher up the value chain as well. So you can see across here that we provide staff to both white- and blue-collar customers but also from very senior staff right down to the more unskilled level of staff as well. No one customer dominates our revenue base. So as we said previously, the Republic of Ireland is worth about GBP 2.5 billion. We only have a 2.5 percentage market share in the Republic of Ireland as opposed to being #1 in Northern Ireland with 22% market share. We're quite excited about increasing our market share in the Republic of Ireland. It's a great opportunity for our business, which is why we've opened new branches, and we're increasing the amount of staff that we have who will provide services to the permanent market, specifically, which increases our gross profit. Those permanent fees go directly to our gross profit line, and we have our infrastructure in place with no extra cost. We actually hope to have at least 10% of the Republic of Island market within the next 2 to 3 years. So as a market leader and a company with a fantastic reputation, we've decided that we'll launch a new business into the executive permanent space, both in Northern Ireland and the Republic of Ireland, to take advantage of the excellent reputation that we have. Moving up the value chain with executive Recruitment means we'll be going for this part of the market that has even higher salaries and servicing our customers with 360 degrees of recruitment, servicing all rules. We're really excited about this market because it plays very well into our strategic plan, where we're going to increase the amount of permanent business we have from 10% of our overall gross profit to 20% within the next 12 to 24 months. We're also really excited to launch medical and health care in 2021. This is a really exciting market that's growing at an ever-increasing pace. And we've seen this year with COVID that we need more and more medical staff, both within our hospitals and also within the private sector. We are already providing to the NHS and the health service in the Republic of Ireland, but they need more from us. So we've put in a plan of action in order that we can recruit and retain the best staff in the market to fulfill the needs of the health service and the private sector. This market in Northern Ireland is worth in and around GBP 100 million, and in the Republic of Ireland, it's worth in and around GBP 250 million. So we're quite excited about getting a slice of this market and to give our clients the right staff at the right time, which is really what the health service needs right now. So in summary, I'm pleased that we have a proven track record of success, every year profitable, every year cash-generative, every year growing on the Island of Ireland. We are #1 in Northern Ireland, and we're hoping to make the #1 in the Republic of Ireland in the not-too-distant future. We have opportunities to grow our business in the public sector and also in the Republic of Ireland. It's a huge market just waiting for us. We want to grow our temporary business and our permanent business. And remember, we also want to move up the value chain into the executive business also. We have our new markets, which is the executive and also the new market of medical, which are both launching in quarter 1 of 2021. More important than any of that is that we have an experienced, engaged and most talented team, of which I'm very proud. And here they are. That is the team that delivers for Staffline year after year. And on the left-hand side, you can see that they've been recognized by a number of bodies, both north of the island and south, and the wonderful jobs that they do every day. Thank you for taking the journey into Staffline Ireland with me, and I'm going to pass you to my colleague, Frank Atkinson. Thank you very much.

Thank you, Tina. Good morning, everyone. My name is Frank Atkinson. I joined the group in 2019, and I've been leading a deep restructuring of the main Staffline business in the U.K. Mainland. We're currently seeing a stable position, seeing the early benefits of actions coming through, and I'm delighted to say that now focusing on the plan for sustainable growth. Before Staffline, I spent 10 years at Sky, leading the commercial and sales functions of Sky's B2B operations. Prior to that, I was a Board Director, leading sales activities at HomeServe, plc, and I started out my career in the outsourcing industry. I'm supported by an excellent leadership team, comprising of experienced recruitment professionals passionate about this business and experienced leadership brought in from blue-chip companies such as Carlsberg, Experian and Capita. Now in the next 10 minutes, my aim is to give you an overview of the Staffline Recruitment U.K. Mainland business and as to how we're driving future growth through digital-led workforce solutions. But in order to fully understand our future, you first need to see our present. So despite popular conception, our business is much more than a warehouse and driver staffing business. We're the largest provider of flexible blue-collar staffing in the U.K. Mainland, and we also have a growing specialist Recruitment service line, operating from the extensive branch network. We operate 6 core business offerings across 490 sites. 70% of our profits are generated via our blue-collar offering, split across OnSite warehouse and OnSite driving operations. This makes us, by far, the U.K.'s largest provider of temporary blue-collar staff, and we have about 10% market share of that sector. And we use our key USPs of having the largest worker database and the most visited blue-collar recruitment website in the country. We've already invested in digital technology to drive efficiency and effectiveness. And our focus has been to work on these core sectors that have been boosted by demand in a COVID-constrained environment. Our blue-chip client list is the envy of any business, and we're very proud to have played the part in keeping the country up and running during the recent pandemic. And our focus is very much on a food, a drink and an online delivery perspective. Our #1 client in this space is Tesco. And as you'll note from the recent RNS, we've just extended our partnership for another 3 years, building upon an 11-year relationship, which now sees us supplying over 2,000 workers a day to Tesco. Let's now hear from Andrew Woolfenden, who's the U.K. Fulfillment and Distribution Director at Tesco about why Staffline.

The approach we take when we appoint a labor provider isn't just about who's cheapest. What's really important is that balanced approach. And what Staffline brings is a professionalism and a level of innovation that is critical for anybody that we work with because the labor market is ever-evolving and ever changing, and we have to have somebody who evolves and changes with that because it's such an important part of making sure that we're able to deliver products to customers in full and on time that if you're working with somebody who's not able to do that, who's not fleet of foot, who's not involved around the things that evolve in around them, then you soon get to a place where the relationship gets stuck. So having that confidence in Staffline's ability to be responsive, reactive and innovative has been really, really key. And we have that criteria really across all of the labor providers that we work with. And you have to work with somebody who is trusted in terms of the people that they're going to bring into the business. So we've got to make sure that the quality of people are at the same level of Tesco's. And we treat them in that way, and Staffline treats them in that way. And it's important that when they come in, we look after them. And as a trusted partner, I can certainly say that Staffline look after the people that they bring into the business. It really almost feels like we're one business, and you can start to see the evolvement of that, particularly in the ways of working that we've developed in the last 18 months to 2 years.

1/3 of our business is driven through these 4 key specialist operations. These operations have been run as silos for far too long, and they share very few of the same clients as our blue-collar business. This is now changing. We have 2 permanent and contracting brands specializing in technical, engineering, automotive and production, and they provide contractor and MSP workforce solutions. One prime example here is Laithwaites that we currently run a full managed service provision for. We hire contact center, warehouse and permanent headquarter roles. We have another huge asset, and that's our branch footprint, which has been neglected for many years. Typically, a strong branch business, such as that, that we already have over in Northern Ireland, can deliver significant profits and margins twice as attractive as OnSite major account business. We also have a niche outsourcing business, focused mainly on the housebuilder and facilities management sectors today, and this business is led by experts that have led growth in highly successful RPO businesses elsewhere. The business model is a powerful one. And with data managing a range of client-preferred recruitment agencies, they typically take a percentage fee for every time sheet they process and, in return, manage payments and worker compliance. However, there are immediate opportunities for Staffline to gain a double advantage in this space by benefiting from the outsource fee as well as being a supplier to the portfolio of agencies on a customer's PSL. And finally, we have our Scottish business operating under the BrightWork sub-brand. It's 1 of only 4 suppliers in the Scottish government framework agreement, and this means we are 1 of only 4 businesses that are able to bid on government staffing contracts. This is a heavily underutilized USP, and we intend to build a strong generalist business exclusively in Scotland. We have a 3-point growth strategy, and we're breaking down the silos within our business, so that we can emerge as a seamless provider of workforce solutions across the business and the group. Firstly, we want to build more strategic partnerships with blue-collar customers in the right future-proof sectors, food, parcels, logistics and the likes, and grow very much where our clients grow. Secondly, we want to cross-sell our underleveraged specialist recruitment services, capturing the higher-margin and cash-generative recruitment, which we historically allowed other agencies to supply. And finally, we want to transform our branch business using extensive expertise to focus on driving the significant opportunity in local, sustainable, high-margin business. And we'll do this through investment in leadership and productivity improvements, focusing on fee-earning consultants to deliver. There's really no better example of our future already happening today than with the one of our largest clients, Hermes. Hermes, a parcel delivery firm, have been a customer since 2018, and we want a highly competitive tender to be their master vendor. They've been growing at a rate of around 30% per annum. So in terms of our journey with Hermes today, firstly, attracting workers, we use our artificial intelligent chatbot, Flin, and digital attraction of our -- via our unrivaled database of over 1 million candidates, and we also support that by bringing in skilled workers via the IRF with the help of PeoplePlus. In terms of onboarding workers, we deliver a quality approach, the compliance approach -- a compliance approach that could be driven virtually. So there's no need to have those face-to-face training sessions. When our workers are on site, they can now be checked in via facial recognition, allowing the payroll clock to start and stop and check that they genuinely have the right to work. Our now-famous engagement survey, Have your Say, ensures workers are regularly assessed for satisfaction, allowing us to deliver a high morale base of workers. And we offer unrivaled development opportunities through PeoplePlus' support to up-skill and train those workers to take on bigger and better roles at Hermes. And we're now actually adding value to that relationship further, still. We're recruiting contact center staff to support their peak activities. We're joining their PSL to recruit perm and contract headquarter vacancies, and data from RPO business are offering supply chain auditing services. And to add to that, the power of our data and our insight for our unrivaled data set gives us products that we can offer Hermes that no one else can. We know blue-collar workforces like no one else. So we remain the largest provider of workforce solutions in our field. We work in sectors that are growing and, despite COVID, are very much built for the future. We have already embedded technology to drive our inefficiency and cost, and enhance our already-formidable competitive advantages. We have the perfect specialist divisions to cross-sell to that customer base, and it's a customer base that's open for consolidating their current recruitment supply chain. And we have a team leading this business recruited from diverse backgrounds with the success through growth as part of their DNA. In summary, we have a quality business exposed to really positive and attractive sectors. We are rightsized for the future, and myself and my leadership team cannot wait to show the fruits of all our hard work and the resulting impacts on the results for next year and very much beyond. Thank you for listening. Now let me hand you over to Simon Rouse at PeoplePlus.

Thank you, Frank, and good morning, everybody. My name is Simon Rouse, and I'm the Managing Director of PeoplePlus. I joined the Staffline Group in November 2017 to take on the challenge of navigating PeoplePlus from the wind-down of the work program to a profitable future. And I did stay because I could see an organization with a fantastic market opportunity, and I see that even more today than I did then, and I hope over the course of the next 10 minutes to show you exactly why. My own experience spans financial services, outsourcing and the public sector. And over the last 3 years, I've brought a high-caliber team of the best talent in the skills and employability sector, complemented with individuals from FTSE companies and with experience of managing high-profile, large-scale public sector contracts. It's a team that is both set and excited for the opportunities ahead. Now PeoplePlus is well positioned for the new market opportunity which has emerged through this pandemic. As the largest and most successful skills and employability provider in the U.K., our opportunity to support central and developed governments to navigate the high unemployment challenge is clear. Now these 2 sectors, skills and employability, are the strategic focus of PeoplePlus in the new economic environment. And it will be supported by a significant reduction in our exposure to other markets. That includes the apprenticeship levy market, where we see a more challenging environment following the shift from low to high unemployment. Now at PeoplePlus, we bring a reputation with all of our clients and learners for high-quality service delivery, and that's reflected in our current Net Promoter Score of positive 36, which is improving from that already-high level. For the group, PeoplePlus brings client diversification with well over 90% of our revenues coming from government at the time of high spend, by then in skills and employability markets, and they are a stable set of clients with level credit risk. Our positioning is built on a footprint of contract delivery across every corner of England and in Wales and in Scotland. And since the work program wind-down, our delivery model has developed into a more efficient model of digital delivery, supported by an agile face-to-face model that uses fewer fixed premises by utilizing pop-up community sites and also through our work with best-in-class partners. Now that efficient model will be key to our profitable contract delivery in the employability opportunities to come. Now our reputation and our quality service were key to securing a very successful outcome in the recent DWP employability framework. We secured a place on every lot across England, Scotland and Wales, and we were the best-performing provider in terms of having secured both a representation on every lot but also the most Tier 1 lots, which is for the contracts of most value in excess of GBP 11 million. And finally, we also bring strong relationships with our key clients in government, both through our reputation for high-performance delivery and particularly because we bring innovation in our skills and employability services. Now that reputation is captured well on this page. I won't cover all of them because you can read them, but there are 3 that I particularly wanted to highlight. First, you can see our position in the employability arena, which stands out. No provider has put more people back into work in the last 10 years than PeoplePlus. But it's not only our proven ability to deliver at scale. It's our proven ability to deliver performance in England, Scotland and in Wales. Second, our Feed the Nation campaign, which saw us gain widespread coverage in national media, and it showed the unique power of the Staffline Group to mobilize quickly together, as PeoplePlus did with Staffline Recruitment, and to put over 25,000 people back into work at the height of the pandemic. And you can see below the recognition from government captured in the quote from the Employment Minister. And third, our footprint in adult skills, where in both our representation in local regions and in prisons, were unmatched by any competitor. But importantly, we also have results to match it with, over 90 -- with 94% of all of our learners securing a qualification when they work with us. Now one of my priorities on arrival was to fix the bid engine and create the growth that the business needed. That demand did clear discipline to bid for contracts that created positive net margin, improved our working capital cycle and enhanced our reputation for delivery. And as a result of that work, since 2018, our bid win rate has improved from 1 in 3 to better to 1 in 2. And our contract win value has grown significantly with it. Now that bid engine now sits on what you can see is a transformed pipeline, a nearly tenfold growth on the pipeline as we left 2019 as a result of the pandemic. And employability and skills, as you can see, are the dominant part of that opportunity. Now you can also see on the right-hand side, the active opportunities we are now managing against for 2021. Now these are contracts where our route to profitable delivery is built on our technology-enabled platform, our margin discipline and our high-quality service and contract management. And I just wanted to take the first 2 opportunities as examples. So the job-finding service is a fixed fee-for-service contract. It's working with the short-term unemployed to help them quickly get job-ready and back into work. So we are deploying a market-leading jobs and skills digital portal to this opportunity to enable people to get access to CV-building, interview preparation and other skills that will enable them to quickly move back into work. The second opportunity is the Scotland's job entry-targeted support contracts. Now this is the very first opportunity that's emerged from the DWP framework to which I referred earlier. Now we are 1 of only 5 providers on the Scotland framework. And again, this is a largely fixed fee-for-service contract to work with COVID-19-impacted individuals to enable them back -- to get back into work. And in Scotland, we bring not only our employability expertise, we bring specific expertise in Scotland, and also, as I said, our jobs and schools digital portal, and it will largely leverage our existing infrastructure in Scotland. Now for the group, PeoplePlus brings a very different set of capabilities that enhances its reach to employers and create mutual opportunities with Recruitment. At this junction, I just wanted to talk to you about the social Recruitment model that PeoplePlus has developed. Now this enables employees in Staffline Recruitment to share with us labor market intelligence on available jobs that enables PeoplePlus and, indeed, best-in-class-selected partners that we have chosen to train specifically for those jobs, turning the skills market into one that is demand-led, not supply-led. It creates job-ready candidates, which improves conversion from interview to hire for Staffline Recruitment and for those employees. And critically, it enables employers to demonstrate social value by recruiting from individuals from hard-to-reach groups in the labor market. Now Amazon is one such client using this model and has done for 12 months, and here's what they have to say.

I'm Shelley Hooper, Workforce Staffing Manager for Amazon in the Northeast, currently responsible for our sites in Darlington and Durham. We've been working with PeoplePlus now for just over 12 months as an employer on their social recruitment service. This is meant that we've been able to recruit individuals who've received tailored support and preemployment training before coming to work for us. One of our key objectives is to recruit at least 5% of our workforce for both new and existing Amazon locations, specifically from disadvantaged groups. So our relationship with PeoplePlus is really key in helping us to achieve this. For our Darlington and Durham sites, I'm pleased to say that we've recruited over 400 new workers through the program, which is really, really positive, something that I was really passionate about supporting when we opened both locations. Having lived in the Northeast for the last 6 years, job opportunities up here are few and far between. So to be able to work with an organization like PeoplePlus and really support individuals in the local community is something that I've been really proud that we've been able to achieve.

So you can see there how PeoplePlus is using its market reach and capabilities to support what we all know is a fast-growing employer in the U.K., and there are many other examples of where the social recruitment model is supporting Recruitment directly and, indeed, other employers. So in summary, with PeoplePlus, firstly, you have a workforce solutions provider well positioned for the new economic environment. Secondly, PeoplePlus brings group client diversification with its central and evolved government clients. Thirdly, PeoplePlus has strong market leadership and reputation in its chosen sectors of skills and employability. Fourth, our bid disciplines are on a strong pipeline from which we can deliver profitable contract growth. And finally, hopefully, you've seen the mutual opportunities that PeoplePlus has with Staffline Recruitment to grow and deepen our employer links. Thank you.

Thank you, Simon. Well, good morning, everybody. It's a privilege to be leading Staffline at this time. I really feel excited about the hugely talented team of leaders we've just seen; and of course, a strong CFO in Daniel, who has our back on the financials and the governance. The group is also fortunate to be chaired by someone of Ian's quality and experience. He's got lots of plc leadership experience. He's put in some really hard work and long hours to get where we are today. So thanks, Ian. For those of you who know me, hang in there, but for those who don't, we've got a brief biography in front of you right now. Recruitment and staffing just runs through my DNA. I love the sector, 2 decades of successful staffing brands. At Harvey Nash, where I was CEO for 14 years, as some of you are aware; and before that, FTSE recruitment group, Hays Plc. I've also held a number of nonexecutive and advisory roles, and you can see that on the bio. Of relevance is my Staffline Audit Committee experience. I've been on the Audit Chair position since March, and I've been able to gain some unique insights into the business from that position, help me to hit the ground running in the last 4 weeks. So 2 questions I get asked a lot at the moment, and many of you have asked those questions of me before today, which are what are your first impressions? And why Staffline? Well, there are 3 big question marks that hang over the group. First of all, you kind of expect the poor financials, the historic losses and the weak balance sheet, but I was a little surprised at the lack of the governance framework. So when COVID hit in March, really, as a Board, we had to act fast. What surprised me a little, too, was the way the previous management had run the business. There's -- divisions have been run separately, and so there's a deeply entrenched silo mentality that kind of runs through the group. And the consequence of that is the benefits of the cross-selling synergies and overhead shared services opportunities, they remain dormant historically. However, on the positive side, the business is extremely client-focused. And I want to emphasize this. It's an extraordinary situation. This business is so customer-centric. Its reputation for delivery is quite extraordinary, and I've witnessed this firsthand in the last few months. And the leadership of the business is one of its competitive advantage. Lots of experience on the leadership team but also the people that are down the hierarchy in the group. The group is really crying out for leadership, and the exec team, I'm delighted to say, have stepped up to the plate. Now I'm going to talk a little bit more about that later. This slide shows the scale of the market and the huge opportunity. I mean the U.K., as you know, is one of the world's largest recruitment markets, and it remains so. It's also one of the most resilient, in my experience. Now these numbers are 2019 numbers. That's obvious. And of course, COVID has impacted them. But one thing I've known over the last 2 decades is that recruitment always bounces back. I've navigated 3 recessions in my recruitment career. This will be my fourth, and it's always the same. Client demand always swings in favor of temporary and flexible off-balance sheet labor. There are 2 reasons for it. One, companies don't want to get involved with the administrative and workforce solutions risk; and secondly, they get a cash flow benefit from outsourcing their labor. Secondly, governments spend money on getting people back to work during recession, so you get an increase in public focus -- public sector focus at this time. We also know that the recruitment is cyclical. The recruitment sector is cyclical. So our mission today is to make sure that the group is well placed to benefit when it does. The next slide talks to our strategic priorities, and I'm going to start with the very first one. It's operational excellence. I've already described that there's a real business here, but simplicity, organizational design, a team dynamic, these are sorts of things that the team are implementing. We need to focus on our knitting. And whilst there's a plethora of great data and a myriad of performance measures right across the group, I've literally seen pages of data, we really need to simplify down to some key drivers of success, productivity and core commercial KPIs. Right. Pillar 2, you've heard plenty from Ian and Daniel on this, so I'm not going to repeat the main areas of action. If we're going to be successful, however, we do need a sustainable governance framework. We have to build the group on granite, not sand. Now the same goes for costs. It's all about being able to compete. So we need to have a price point where our overhead and our cost base is appropriate. This is a highly competitive market. We need to win. So we need our cost base to be rightsized. Four, digital and tech. Now you've seen Frank's great presentation of the clients and candidate digital journey. We're in the process of identifying the best practice, the sort of thing you'd expect: shared services, reviewing the estate, supply chain economies, all good stuff. But it's really in the transformation of the client and candidate journey using automation, artificial intelligence, clever tools, digital tools that we can transform the business, including the cost base, of course. Now clients and brand. Well, Tina has just brought Ireland into the Staffline brand, so we have a unified group recruitment brand. And Frank is transitioning all the acquired legacy brands. This is further breaking down the silos and will go a long way to bringing those opportunities of cross-selling to the foreign. There's a lot of exciting stuff to do here. I'll give you one example. The opportunity to expand major accounts. You've heard a lot about the OnSite. It's a tremendous benefit and advantage this group has. Tesco's, you've seen the endorsement from that company. Another one is HelloFresh, which is a recent win. We can work with these major accounts on-site in multiple geographies relatively seamlessly. Hermes is a great example. We're not only on a geography basis, we're working across service lines, involving PeoplePlus teams and Recruitment. Now here's 3 stunning facts about the business. Very passionate about recruitment and delighted to say that over 50% of the revenue is coming from the growing food, logistics, essential services sector. It's up 10% on 2019. This includes online in those sectors that are benefiting from lockdown and benefiting from the sort of COVID-impacted economy. That's 50% of revenues. Second stunning fact, it's a temp/perm split of 90% temp, 10% perm. As you've heard, this creates a huge opportunity. Both Frank and Tina's businesses are driving more permanent, higher-margin placements that are cash-generative. Indeed, Tina is even looking at using executive across her place -- her network. And as she says, it's pure gross profit, and I will add to that and say it's pure cash. The third fact is Simon's PeoplePlus pipeline is up 7x compared to this time last year. And he's got to deliver that, of course, and he's got to bring those opportunities to the table. But the pipeline is stunning. Now we all know that turnover, for its own sake, is vanity, of course, but these revenues and these client initiatives and these -- aligning the brands are going to create the environment for cross-selling opportunities. And of course, ultimately, that leads to profits and cash. Now last but not least, one of the first things Ian said to me when we talked about the group's future was how he was impressed with the leadership and their teams. And I fully agree after 4 weeks. Of course, we'll measure our progress in the management of talent. Every good recruitment business needs a proper talent management program, and we've got plenty of that at the group. But these staffing businesses rely on great people to be motivated and to be successful. So implementing a sustainable succession and talent plan is one of our top strategic priorities. So to conclude, we operate in a large market. We have exposure to strong growth sectors. We have a highly motivated exec team. So if you combine all that with the group's scale, its geographic footprint and the client-centric culture, which I've seen for myself firsthand, with all this, we can do and we will do much better. Tesco's fully leveraged our capabilities. Amazon's endorsement is very real. Our clients know it, the exec team knows it, and hopefully, that answers the second question, which is I joined Staffline really because the upside opportunity is crystal clear. Thanks so much for listening. I'll now hand you back to Ian. Thank you.

Thank you to all of the presenters. And I hope that you have all found the presentations a benefit and has given you a real insight into our business, our clients and the opportunities in front of us as well as hearing from our executive team. We'll now be holding a live conference call immediately after this presentation for those who have preregistered, where all of the presenters will be able to discuss any thoughts or questions that you may have. Thank you very much.

This question-and-answer session will be directed by Ian Lawson. [Operator Instructions] We will take our first question from Joe Brent from Liberum.

I've actually got lots of questions, but I thought maybe if I could just start with Albert, actually. Albert, could you -- you talked about the split between perm and temp, and it feels like you want to grow the perm business more. Could you give us some indication of where that balance might end up? And secondly, Albert, as you cast your eye across the various businesses, where do you see the highest revenue growth?

Joe, good to hear you there. On your first question, when I look at the Recruitment business, I'm always looking at balance of temp and perm, and you know why. Temp has got an element of annuity to it. Its resilience. It builds deep relationship with clients. It's quite sticky. Perm is somewhat opposite, being that it's quite transactional, and it does -- it hasn't got the annuity characteristics of temp. But a combination of the 2 usually has 2 effects. One is, it embeds the relationship much better because, as Tina and Frank know, the perm placements are really enhancing the value of the relationship. They really build the relationship directly with the clients. You're providing very, very good people. The second point is on cash flow, Joe. If you look at the successful recruiters, they've got a high proportion of perm, and that helps the balance sheet. So perm is cash-generative. It's a very, very strong indicator that you have a strong relationship with the client. Now we've got 80%, 90% temp here, and in the blue-collar business, you'd expect that. But I think certainly, as everybody has been outlining, they've got lots of plans with the fixed network they have to drive up the perm values. Now this is a big business, so it's super tanky. You're not going to change those percentages overnight. But I think we can make a good start. And we've got a tremendous opportunity, and that's what Tina made -- is a point that she made, was that with driving the perm up and going up the value chain, you're really utilizing both the relationships -- the existing relationships you have and the network you have, and the marginal impact on the bottom line and on your cash is much higher than if you're starting from scratch. So Joe, let's answer to the first question. And you know from a policy history that I always felt that 70-30 was the optimal balance between temp and perm. Once you're at 70% temp or annuity and 30% perm, you are in an ideal market scenario where you're funding your own capital growth, your own growth, your working capital growth. On the second question, Joe, could you just repeat it so that I answer it as concisely as I can?

As you cast across the various businesses, Albert, I was just wondering where you see the highest growth.

Well, I mean, I mentioned it in the presentation. We are seeing, obviously, the impact of the lockdown in a positive sense on our essentials and food, online driving areas. So where the lockdown's stopping movements and economic activities and everything, except essentials, we're obviously seeing strength there. And indeed, the customers -- and Frank and Tina can attest to this, the customers are calling it almost virtually immediately following that announcement to look for staff. And I know that Frank in his business has had to move staff from nonessential areas -- or temps from nonessential areas, and he successfully put them into through distribution and essential. So that's where we're seeing the boom. We're also seeing a lot online. So all of the customers -- HelloFresh is a great example as well, where there's really huge demand for driving, delivery, logistics. That's where the demand is at the moment, for lots and lots of labor to support a very, very fast-growing part of the economy.

That's very interesting. But from a divisional perspective, my sense was that Ireland possibly offer the greatest growth given that it's pretty under-indexed in Southern Ireland, and there's a lot of opportunity to grow in both the blue- and the white-collar space. Is that fair?

It is. And we're very attracted to the Republic of Ireland market. It's where we have low market share, and Tina is coming from a position of market leadership in the North. So she talkies about the Island of Ireland opportunity all the time. It's also a less-developed market, which you might be slightly surprised at. But although it's a faster-growing market, economically, it is slightly less developed in terms of the recruitment sector and trails the mainland here in the U.K. in terms of competitiveness. There are fewer players, and it's much more of an opportunity to carve out some market share. We've also got a strong generalist brand in the Republic of Ireland, and that's a huge opportunity because we're not so weighted towards just one particular sector like blue collar. We can easily navigate up and down the value chain and deliver on assignments and on positions through -- up and down the organization without having a reputation that's maybe overweight in one sector. So yes, the Republic of Ireland is a huge opportunity for us. There's been M&A activity. There will be more in our sector. And that, for me, provides a huge opportunities. When there's M&A and there's change in the market leaders, we can then exploit that and use it to grow our own business.

It might be worth -- sorry, just to cut across, Joe. It's Ian here. But it might be worth just let Tina to just put a little bit more color on that as well, actually.

Yes. Thank you, Ian. Yes, I agree with what Albert said. We have a great infrastructure in Ireland for the first time in the last 9 months. Whilst COVID has been going on, we've been investing, believe it or not. We set up our offices of Galway and Dundalk. In the midst of COVID, we also rebranded the Staffline. So we already have very nice slices of the market which puts us, believe it or not, at #2 or 3 in the market, even though we only have 2.5% of that market as in our -- sorry as Albert said, it's not as mature as the U.K., so it's still got a way to go in terms of the actual penetration of recruitment in that market, but it is growing, and there's great opportunity there. So yes, we think we're set up to take market share, and we're quite excited about it.

Operator, have you got the next question, please?

There are no server questions at this time.

Oh, right. Joe, you can ask another question then, if you want to. Joe, would you like to ask another question at the moment?

His line is not open at this moment. I'll just -- one moment now so he's -- please go ahead.

Yes, I've been muted. I definitely want more questions, if that's okay. I've got quite a few. But operator, please interrupt me if other people have questions. I don't want to dominate the meeting if there are other questions. But maybe if we can move the attention to Daniel for a moment. A lot of talk about growth, and one more thing that will require working capital. Although Albert has talked about how the changing model could help sort of be self-funding. Could you talk us through the working capital needs of the business as we sort of look into all these growth opportunities? And secondly, I'm afraid my online fell apart slightly when you're talking about your margin growth. But could you walk us through the various components of the margin growth for the business and how are we going to get to higher margins?

Joe, thanks very much for that -- for those questions. So just to cover the first of that, the working capital needs of the business. So as we return the business to profitability, which, of course, the group has a really good track record in, going a number of years back and the successful delivery of that -- of course, it's had a couple of bumps along the way in the last couple of years, but we do have a track record in that the group. And as we do that, then, of course, that will support cash growth and support the working capital requirements of the business. And I've also talked over the last few months in terms of the -- what I referred to in the presentation is the slimming of the balance sheet in terms of being really, really laser-focused on the nature of the contracts that we take on in terms of their working capital cycles. We -- although the -- there are some outliers who I'm about to quake, we've got 1 or 2 customers we've taken on recently with 7-day payment terms, but we are being really very challenging in what we're taking. I recognize those are outliers, but we are being very focused on that. And therefore, which I think is what you're driving at, as the group grows, we will reflect on what we take on, and we will take on the appropriate nature of the work. But secondly, you'll also know that we have moved from having a revolving credit facility to a receivables facility over this year. And therefore, the nature of our financing is, and we'll, obviously, we continue with that financing structure, continuing to flex with the business. And therefore, that will enable that our working capital requirements are similarly flexed. So I think it will be a blend of the 2 approaches that will enable us to grow sensibly. The second of your questions...

Can I just follow up on that one first? One way of looking at the business you've got, permanent, temp and people who have left. Could you talk through the different working capital characteristics of those 3 bits?

Sure. Well, naturally, with the temp -- with a permanent model, the working capital burden on the business is the lightest. And as Albert, and Frank, in his presentation referenced that we are going to look to make sure that we leverage recent acquisitions the group made in 2018 and streamlining of our branding to ensure that we are exploiting the permanent opportunities to their maximum. That will naturally help the working capital cycle -- sort of the best from a divisional perspective out of the group, and obviously, in the position that it has as well. With regards to PeoplePlus, we -- I think it's well-known in the market that contracts that can be taken on in that sector do require working capital. So we are extremely conscious of that, but that's usually at the beginning, and those can have some very, very quick turnarounds from a beneficial perspective after the initial working capital investment. So we're conscious of that, and we're very mindful of that. So I would put that as I'm working my way up to the working capital burden, if I can talk about the working capital ladder. And then, of course, is the -- at the top of that trade of working capital use is the temp model. I mean that's a model that we all know. It's logical, we pay temps, and then we get paid for them. What's important in that is that we take on responsible working capital requirements. But that -- then we also make sure we take on profitable contracts. So again, this is going to be a multifaceted approach, as it is for all those types of businesses, but I hope that gives you a feeling. I can't really lay out in a particular numbers on what that drives because there's different parts of those divisional working capital cycles that have their ups and their downs. But those are the different natures of those 3 working capital cycles. Do you have any other questions on that? Or shall I move on to your margin question?

That's [indiscernible].

So in terms of margin, we obviously commented in the presentation on 2 areas: one, gross profit; and then conversion. In terms of gross profit, we want to see us moving up the food chain. I say that -- in the value chain rather than the food chain, why don't we start with the food supply chain, but into the value chain, naturally increasing our permanent footprint will -- of course, naturally lead to that. That would just be -- that will be natural, and we'll just have to see how well that progresses. But when we're talking about our temporary worker activity, one thing that I have found, and I think Ian and Albert would corroborate this, irrespective of the challenges of the group, and you will have seen the comments from the Procurement Director at Tesco's, is customer service that this business has delivered. And it's testament to the history of the group, previous management and on -- and the people who drove the group over the last number of years and who continue to do so, that customer service for this company in this group is second to none. And I think that's proven even more with all the bumps and challenges over the last 2 years. The fact that, that customer services continues to be well-respected, even with what's happened the last couple of years, I think, is a real testament to that reality. So what I mean by that is -- in terms of the margin comment to a question you asked is that we will be taking on business that plays improving margin. We'll have to balance that as we go, but that will be one of our objectives. And it's perspective we've already taken over the last few months. I mentioned we've already sort of have noticed on one of our contracts, and there are a few other contracts, that either we've served not just on smaller ones or we actually haven't bid for because of the payment terms or the margin has just not been good enough. And that's going to be very, very important. And the second aspect to the margin delivery, of course, is from an operating profit perspective in terms of conversion. I referenced some of the cost savings we have already made, but that's not just as a response to COVID or the requirements of the group over the last 15, 18 months. We have more to do. And I obviously see that. That's my singular responsibility, along with the team around us on the call here, to drive further refinement of the group's cost base and to ensure that it's operating at an optimum level to ensure that we can achieve those conversion targets that we spoke about in the presentation. I expect that a few things such as group cost sharing, but -- and Albert -- I would turn to Albert's comments in terms of digitalization. I think over the coming 18 months to 24 months, the impact of cost -- on cost of that will be interesting in terms of driving our top line and driving down our middle line.

Operator, do we have any more questions?

[Operator Instructions] We have one question from Adrian Kersey from [indiscernible].

Very good presentation. I'm afraid it's not just one. It's a few -- I won't go into all of them. I'll perhaps give Joe a chance to ask a few more later after me. The PeoplePlus pipeline, massive jump in the pipeline. Could you perhaps give sort of indication of the types of contracts available and the time line? And sort of related to that, the government, since the COVID crisis, has been making policy almost in real time. Do you get a sense of the types of initiatives within the PeoplePlus arena that are going to be made available perhaps in the short term in order to get people back to work and get people back to work quickly? Perhaps I'll just leave it with those 2 just for the moment.

Adrian, thank you for that. Probably rather than me harp on you, in my opinion, I think it would be good to hear from Simon, who can talk with a lot more knowledge about the sector and what's there. So Simon, is that okay for you to?