Staffline Group PLC (OSU.F) Earnings Call Transcript

Good morning, and welcome to the Staffline Group PLC Investor Presentation.[Operator Instructions] Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Albert Ellis, CEO. Good morning, sir.

Good morning, and welcome. You've got Daniel Quint here, my CFO, and myself, Albert Ellis, CEO. And welcome to Staffline's First Half Results Presentation for 2026. Before we begin the formal presentation, we thought we'd like to share a lovely video that showcases some of the fantastic work our people are delivering across the business and the positive impact they make every day. So before we start, we're going to run this short video, and thank you... [Presentation]

We'll start the presentation now, and we're kicking off with a well-known slide if you've been following us, which is really setting out the strengths and the benefits of the group. One of the questions that we're asked all the time is how do we manage to grow the business whilst there is a real recession in recruitment, as you know. And it's all about the scale and the reach of the business. So we always use this slide to demonstrate the scale and the reach. And we -- our client base is a sort of blue-chip FTSE 100-type client base, and they want partners that can equal them in scale and expertise. The other reason is, on the left-hand side, you'll see our annualized revenue is our exposure to essential goods and services like food distribution, food manufacturing, public sector, local government. We've got lots and lots of stable sectors and essential services, services that are required, whatever the GDP figures might be that month. So on to the results quickly, I'm not going to go through them in detail, but just pick out a few highlights. I mean the gross profit is up 13%. I think that's the fastest acceleration of gross profit we've had in some time. And this has been driven by temp hours, temporary worker hours lifting over the course of the spring and accelerating through the summer. The permanent fees in Ireland are up 33%. I think that's a record. So part of the story is that in Ireland, and this is in particularly the Republic of Ireland, we've had an exceptional performance in permanent placements. Also, as I said, good exposure to public sector, essential services. And then, of course, in June, we've had very good weather, and this has driven consumers acquiring food and drinks to stay at home and watch the World Cup. And we've seen that accelerate all the way through Ireland -- sorry, through June. But in fact, the last week in June was the highest year-on-year temp hours that we've seen to date. And then, of course, you know about our cost reduction program, which we implemented at the beginning of 2025. That was in response to the tax increases, et cetera, that were implemented at that time. And really, those are yielding margin benefits now. We're seeing year-on-year benefit from that big cost reduction program. And finally, Daniel is going to take you through some of the exciting things on the balance sheet and particularly the outcome with the share buyback.

Thank you, Albert. Good morning, everyone. So I'm just going to take you through the detail of the financial performance for the first half of the year, and it's really been quite a significant and stellar first half of the year. So just to delve into some of these numbers a little bit more. So you'll see that revenue was up 15.2% year-over-year. And that is really as a result, not just of the activity delivered in H1 -- but the work done over the last 12, 24 months of growing the business, both in Ireland and in GB, increasing our footprint that when times have required use of temporary working for solutions for our customers, that really has enabled us to amplify our delivery. So you'll see the hours up 10.7%. And then through to gross profit, 13.3%, as Al has already indicated, probably the strongest gross profit period growth we've had, really contributed not only by the hours in GB, which we'll spend a little bit more time talking about, but the permanent fees in Ireland have really come on in this period, 33.3% up and have driven a great performance of the bottom line in the Irish division. And finally, as importantly is, of course, a continuing laser focus on costs across both divisions, both businesses that has allowed our gross profit to operating profit conversion ratio to improve from 10.0% to 13.9%. That is an incredible increase in H1 and something we're very proud of, but very, very focused on continuing. And that, alongside the gross profit and revenue increases allowed operating profit to increase to GBP 5.2 million, which is an increase of 57.6% for the first half of the year. And finally, as I'm going to come on to in a moment, tight control of working capital, which we did invest in, in order to drive that growth, but focused control of that, driving a reduction in financing and interest costs allows profit before tax to increase to GBP 2.9 million, which is an increase of 383.3%. So these 4 financial stats for me really exhibit the delivery of the business operationally and then delivering into the financial numbers. So a really great activity. And just a final comment on these. You might have seen the ONS retail numbers for June, which were up 4.2% compared to June last year. So this really is evidence of those ONS numbers coming through to our business and delivering on that. Now coming through to some of the financing areas. As I just mentioned, net finance charges have reduced by GBP 0.4 million from GBP 2.7 million to GBP 2.3 million. That's a combined effort of both our tight cash control as well as the lower interest rates, which started to filter through 2025. I think they were a reduction in August and then in December 2025 and now fixed at 3.75% Bank of England rate since December, which has benefited us compared to last year, but the tight cash control of both our credit control teams and the operators supporting them has really enabled us to deliver that. Now net debt has gone up by GBP 8.9 million, and that is -- and I'll come to the next slide, a large chunk of that as a result of the late May throughout June spike in the hours, as you'll see a bit later on, has already spoken, circa 11% for the whole half, but circa 16% for June and 18% for the last week, that drives that little spike in net debt, but this is valuable investment in the growth of the business. And of course, if you look at our financing headroom, we still have nearly GBP 46 million of headroom in our facilities and our covenants. We have a leverage covenant at 0.5x when the covenant cap is 4x and interest cover with our floor cover being 2.25 covenant, and we're at 18.6. So significant firepower for continued growth in the business. Now just to touch on the net debt in a bit more detail, and this is a 12-month presentation. So from the 30th of June '25 to the 30th of June of this year, '26. and really strong trading cash flow of GBP 16.2 million. And then I've just highlighted in that dotted box there, the GBP 4 million specific working capital investment in the hours growth that we saw in the last half of May and the first and the remainder of June that required that investment, but it's certainly paid off as the numbers have illustrated. And finally, on the right-hand side, in the 12 months, we did receive our last portion of deferred consideration from the sale of PeoplePlus, which was sold in February 2025. And we have also purchased GBP 4.9 million over the last 12 months. of share buybacks. And now just a little bit more reflection on the share buyback program. So we spent the last 3 years, we launched share buyback programs in August 2023. And I just reflect for a moment the benefits to the group that those programs have given and so more importantly, to shareholders, current shareholders. So we have reduced the shares in issue by 49.8 million since August 2023 -- 49.8 million shares since August '23. And that is 30% of our original ordinary share base. And that has been accretive to EPS by 32% after tax and after interest, a full 32%, also supporting, obviously, the operations of the business and the performance of the business have also contributed to the share price. The share price that has gone up circa 50% as of this morning, probably closer to 60% -- so I think it's a really interesting illustration of the deployment and the capital allocation strategy of the group over the last 3 years, how it has delivered accretive benefits to EPS. And that concludes the finance section, and I'll hand back to Albert to take us through the operational review.

Thank you, Daniel. I'm just going to start with a brief outline if you haven't been following us or you just wanted some clarity on our strategy, just so that it brings it all together for you. Our main -- the main pillar of our strategy is to maintain the incredible market share we have and to increase it. Indeed, win more business. It's all about market share. It's all about economies of scale. I think in the modern sort of current economic climate around the world, you've seen some of the recruiters, the large recruiters retrenching from certain geographies. Where they haven't got scale, they've said they want to focus on markets with high potential with high market share. Well, this has indeed been our strategy for 5 years. We believe in market share. We believe in dominance, and we believe in sharing the benefits of the economies that come from market scale with our customers and our strategic partners. And second to that, whilst we do have a very sharp focus on blue collar, we have actually broadened the portfolio over the years. And so we're very active in increasing our share of permanent fees. Managed services business is doing well. You would have seen that in the RNS. And we have niche white-collar sectors where we're doing recruitment at the white-collar level. So broadening the portfolio is really an important part of the strategy. A number of years, we identified Republic of Ireland as a strong economy, which we were very small. And over the years, and I'll show you that, we have invested in that economy to great effect, and that's been a terrific success by the team in Ireland. And finally, as Daniel said, we're very focused on capital allocation, on using our capital wisely on talking and debating about how to get the best returns to our shareholders. Now we put in a slide here, just to remind you of the quality of the customer base that we have. I mean it's household names, blue-chip listed companies, well capitalized, very little, if no bad debt exposure and actually with a constant stream of demands and requirements. The thing about recruitment is that really to get economy of scale and to provide quality at a price that customers are interested in, you've got to have a stream of requirements. You've got to have some demand that's constant, so you can apply resources to it and amortize the cost of those resources over multiple assignments. So these customers do this for us, and we're very proud to be their key labor supplier. And we place them in there just to give you an idea of the sectors they're in, whether it's third-party logistics outsourcing, supermarkets, motor vehicle, automotive supply chains, automotive manufacturing and indeed consumer goods. So we've also recently, in recent years, been looking at the security, the aviation and the security industry, and that's also been a good growth market for us. So now on to the individual results, starting with GB, which is everything excluding Ireland and Northern Ireland. Look, this is where temporary hours have really rocketed 10% year-on-year. It's all organic growth. That's our strategy. That's our mission. The full year benefit of our strategic partnership that we concluded last year in May, you can look that up with one of the U.K.'s largest logistics providers, where we have about 2,000 temp driver security and warehouse operatives. The full year benefit of that will come this year, and we'll start lapping those increases around about August. So we'll see that strategic partnership in the comparatives. Look, the key segment that we've seen most of the growth is where supermarkets and large retailers have outsourced their labor and their distribution and their warehousing to third parties like DHL, like Culina, like GXO. And these companies are providing outsourced services and we're providing the labor element. So that's been a key element of organic growth for us and one of the drivers of our success. And then, of course, we've got the resilience of the sectors, logistics, food and supermarkets, as I've said before. And not only that, but our managed service specialist, Datum, which provides consulting, audit services, particularly around labor and the management of labor in the construction industry. They have had a record 6 months. And along with Brightwork & Omega, which is Scotland and our engineering business, who have stabilized after a tough period with the white-collar recruitment market in the last few years. And so finally, this business has done extremely well, increased revenue by 16%, gross profit by 14%. You can see the margin has gone up and the operating conversion from gross profit to operating profit increased from 17.9% to 18%. So that's a super efficient business, and it benefits from scale, excellence in delivery and of course, as I've said before, the flight to quality. Now we've got a little graph here, which we love, which is the -- which tracks our hours over a number of years. And you can see the green part of that, the top part of that graph. You can actually see Easter, the Easter spike, Mother's Day spikes. And then you've got the gradual increase in the spring, culminating in well over 1 million hours a week in June. And that really kicked off with the hot weather people obviously staying at home, entertaining at home, hospitality, barbecues, et cetera, and then watching the World Cup. So we saw significant increases in the World Cup. And the World Cup is not going to go on forever. Indeed, it's finished as we speak now. But we -- that windfall was a good period that we were able to supply and generate quite a lot of activity and benefit from that period. So terrific June. And actually, indeed, it continues a little bit into July because the hot weather is continuing. And now on to the next slide. I just wanted to put this in. Apologies. It's just a small boast on behalf of the team at Recruitment GB to say well done, some real big industry recognition there. From The Recruitment & Employment Confederation, 5 shortlist categories for this year, so crossing fingers that we do well in that. But to be nominated is a real honor and the team deserve every amount of recognition that they get through that. And now on to Ireland, which has had a stunning 6 months. I mean, doubling operating profit compared to 2025. Revenue up to almost 10%, margins stable, slight increase in margin, but generally stable and operating profit doubling with operating profit conversion from gross profit to operating profit, almost doubling from 11% to 20%. I mean 20% in the industry, if you're not au fait with the recruitment industry is a very high conversion rate. This business is run extremely well by the team there who are very experienced and have been there for a long time. The change in the mix is interesting. We love permanent recruitment in Ireland. It's white-collar perm recruitment. It's good margin, but it's also cash generative, and it helps fund the recruitment GB business because that has quite a significant requirement for absorbing working capital. And so Ireland provides a lot of the cash for that. Record results from the Republic. I mentioned as part of our strategy. We love the Republic of Ireland. It has a balanced budget. It's got a healthy situation. It is a strong economy, as you know, and GP is up 12%. That's record. We've expanded our office network with there. We're increasing our headcount, and we're winning material contracts, well done to the Republic. The stability is also through a sector focus. Each division has a sector focus that provides stability and resilience. And in Ireland, it's around public sector, health and social care, local government and also security, the security services in both the Republic and the North of Ireland, where there's a constant stream of demand and there's headroom in terms of requirements. Good. So just a lovely graph demonstrating the strategy in Republic of Ireland, in particular, where we've had real good growth in permanent recruitment, but this is actually overall in the island of Ireland, how our team have grown their gross profit over the years. And that's in the recent times been really driven by additional large mandates for multiple perm placements. Daniel is just going to give you some thoughts on what's very important to us, which is our environmental, social and governance area, and he'll take you through that. Daniel?

Thank you, Albert. Providing access to work in a sustainable manner is absolutely critical for us. It's critical for our customers, critical for our employees and critical for our temporary workers. And it's absolutely fundamental to what we do, whether it's training hours, which we provide or actually providing work -- good work for workers and also lowering our emissions. But I just also put on here just at the bottom left of the slide, a few of the items that we've been shortlisted for. One of the items actually that Recruitment GB has been shortlisted for is work around modern slavery that the business is doing in Scotland, which is really, really important and extremely valuable. And then other areas of social value contribution that the business makes to the communities in which it works, the business, the businesses who are our customers and making sure that we are delivering in a sustainable manner. And now to the Outlook.

Good. So everybody loves the outlook. So sometimes we should maybe start with the outlook, but it's got a natural cadence to the end of the presentation. So I'll simply state, you've heard it already in the presentation, we've had a very strong start to FY 2026. Obviously, with the end of quarter 2 temp hours rising as they did, up to 16% in June. That continuing into July. The momentum continues. We're very confident about that. And of course, the weather is continuing to support those supermarket sales. And we've got strong pipeline conversion. We're expecting -- we have had in the last 6 months some tremendous wins, and we're extending that and expecting to win more. We've had actually 6 major retenders and secured existing relationships during the period. And so the new business and market share contract wins has been continuing at high levels. So finally, all of that said, trading is -- trading is at the top end of market expectations. And so we're absolutely delighted to be able to bring that to you. Before we leave, engine for growth is quite important to us. We always look through the current ups and downs of the business, the natural trading rhythms and the natural cycles. And what we're interested in is making sure that we have strategic partnerships for the long-term blue-chip customers, as I presented earlier on in the presentation, household names, well capitalized with a strong, consistent level of requirements. So that's important for us. That's part of our strategy. It provides resilience, underpins numbers, and it keeps people in work, particularly our temps. And we focus on temp workers because with the current environment, particularly with the current administration on employers' rights bills, higher minimum wages, et cetera, it will look like, in my view, that we might go back to a situation where I saw a couple of decades ago, where companies were quite nervous about hiring permanent staff and they focused on temps because they can keep the temp worker force quite flexible. And then Daniel has described the tremendous work he's done on the finance. Once again, the engine for growth is our focus on our customers, but we're also looking into the risks. And Daniel has done a fantastic job on interest First of all, doing a tremendous swap that protected us from the rise in interest rates and now doing a collar that protects us from unexpected spikes and rises in interest rates for a long time, for years, in fact, and always maintaining sufficient headroom in our facilities to grow the business. And then we've just got a note on the slide there, obviously, to remind you that we've reduced equity by 30% in recent years, and that's been a tremendous result. So with that, thank you very much for watching. Thank you for attending, and we're happy to answer questions. Any questions that might come up. Daniel will lead the Q&A. So open to you, open to the floor for Q&A.

[Operator Instructions] I'd like to remind you that recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via dashboard. As you can see, we have received a number of questions throughout today's presentation. Can I please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end.