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Enabling
the future
of work™
Staffline
Staffline Group plc
Annual Report 2017
Established in 1986 the Group
has two business Divisions:
Staffline Recruitment and
PeoplePlus.
Staffline is a leading workforce recruitment and management
organisation providing services, mainly in the UK and Eire, to both
Government and commercial customers.
Staffline Recruitment (“Recruitment”) supplied up to 52,000
workers per day in 2017 to more than 1,500 clients. Specialising in
providing complete labour solutions in agriculture, food processing,
manufacturing, e-retail, driving and the logistics sectors, the
Recruitment business operates from over 400 locations in the UK,
Eire and Poland. Key priorities for 2018 are as follows:
• Continued organic growth – focus on our core business
• Continued strong cash conversion – focus on margin and
payment terms
• Bolt on acquisitions – enhancing continued organic growth
• New digital platform – differentiation in a tight labour market
PeoplePlus is built on three key themes of helping people to:
• Transform lives – through our work in Justice Services and Adult
Social Care
• Get jobs and keep jobs – through our work with youth
employment programmes, employability programmes across
the UK, including helping people set up their own businesses
• Develop careers – through our work in Apprenticeships and
Adult Education
It is a trusted partner in delivering employability, skills and well-
being services. Contracts span Central, Local and Devolved
Government and the Private Sector. Key priorities for 2018
are as follows:
• Optimisation of Work Programme business
• Deliver growth in our Prisons’ Offender Learning and Skills
Services contracts
• Develop and grow private skills market business through the
Apprenticeship Levy
• Develop and grow our presence in Wales, Scotland and local
Visit www.stafflinegroupplc.co.uk
government
• Develop new market propositions in health and wellbeing and
corporate learning and development
Overview
Strategic Report
Corporate Governance
Financial Statements
1
Contents
Chairman’s
statement
p06
Overview
2
3
4
2017 highlights
Operational highlights
Company overview
Chairman’s statement
Strategic Report
6
8 Group strategy
10 Chief Executive Officer’s statement
20 Chief Financial Officer’s statement
24 Principal risks and uncertainties
28 Corporate social responsibility
Corporate Governance
30 Board of Directors
32 Corporate governance
38 Report of the Directors
39 Statement of Directors’
responsibilities in respect of the
financial statements
Financial Statements
40
Independent auditors’ report to
the members of Staffline Group
plc
45 Consolidated statement of
comprehensive income
46 Consolidated statement of
changes in equity
47 Company statement of changes
in equity
Chief Financial
Officer’s statement
p20
Recruitment
PeoplePlus
p16
p18
Chief Executive
Officer’s statement
p10
48 Consolidated and Company
statements of financial position
49 Consolidated statement of cash flows
50 Notes to the financial statements
81 Unaudited five year summary of
financial data
82 Company details
2
Financial
highlights
Revenue
Profit before tax
£957.8m
£24.1m
Up +8.5% (2016: £882.4m)
Recruitment £843.3m up +13.8% (2016: £740.8m)
PeoplePlus £114.5m down 19.1% (2016: £141.6m)
Up +27.5% (2016: £18.9m)
Recruitment £11.9m down 28.3% (2016: £16.6m)
PeoplePlus £12.2m up +430.4% (2016: £2.3m)
Underlying profit before tax*
Diluted earnings per share (“EPS”)
£36.3m
Down 1.1% (2016: £36.7m)
Recruitment £17.4m up +10.8% (2016: £15.7m)
PeoplePlus £18.9m down 10.0% (2016: £21.0m)
71.1p
Up +20.9% (2016: 58.8p)
Underlying diluted earnings per share*
Total dividend per share
112.6p
Down 1.2% (2016: 114.0p)
Net debt**
£16.5m
Reduction of £20.2m (2016: £36.7m)
26.7p
Up +3.5% (2016: 25.8p)
* Underlying excludes amortisation of intangible
assets arising on business combinations,
acquisition and exceptional reorganisation costs,
and the non-cash charge/credit for share based
payment costs (see note 5).
** Net debt including unamortised transaction costs
The below charts show the split of
Underlying operating profit between
the two divisions for the last three years.
Underlying operating profit 2017
Underlying operating profit 2016
Underlying operating profit 2015
£39.1m
£40.0m
£30.3m
51.7% Recruitment
48.3% PeoplePlus
47.0% Recruitment
53.0% PeoplePlus
43.6% Recruitment
56.4% PeoplePlus
Staffline Group plc Annual Report 2017 Overview
Strategic Report
Corporate Governance
Financial Statements
3
Operational
highlights
• Record year within the Recruitment division:
• OnSites grew by 38 locations; total
locations now 395 (2016: 357) – making
Staffline the clear market leader
• Successful integration of acquisitions in
Scotland and Republic of Ireland
• The newer Driving Plus, Ireland and
Agriculture divisions all had an
excellent year
• Continuing strong pipeline of new
business opportunities
• Positive trading outlook for 2018. On track
to be in a net cash position in 2018
• Senior management changes
• Operational efficiencies and top
performance within PeoplePlus division:
• Continued cost efficiencies leading to
improved margins
• New business bid win rate doubled.
£54m of new business won in 2017,
including £24m for Scotland Work
Programme (“Fair Start”) and over £10m
Adult Education funding
• Our work to help the long term
unemployed into work remains highly
successful. All nine of our Work
Programme contracts are in the top ten
(out of 39) nationally for performance
• Adult Education division awarded a 2
rating (“Good”) by Ofsted during 2017
Ten year
summaries
The following five charts
demonstrate the strong long-
term growth in the Group’s
turnover, profitability, earnings
per share and dividends:
Annual turnover £’m – ten year trend:
compound annual growth of 26%
Annual underlying operating profits £’m –
ten year trend: compound annual growth of 30%
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
957.8
882.4
702.2
503.2
416.2
367.0
288.3
2017
2016
2015
2014
2013
2012
2011
206.2
2010
115.0
120.8
2009
2008
39.1
40.0
30.3
19.4
12.8
11.1
10.3
7.8
3.6
3.7
Annual reported profit before tax £’m –
ten year trend: compound annual growth of 24%
Annual diluted underlying earnings per share
pence – ten year trend: compound annual
growth of 30%
Annual dividends per share pence – ten year trend:
compound annual growth of 28%
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
24.1
18.9
5.5
10.5
8.6
8.5
7.5
7.0
3.5
3.4
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
112.6
114.0
92.4
59.7
45.8
36.7
33.9
25.3
11.2
10.7
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
26.7
25.8
20.0
13.5
10.0
8.1
7.1
6.2
3.1
2.9
4
Company
overview
People.
Skills.
Jobs.
Staffline is a leading workforce
recruitment and management
organisation providing services,
mainly in the UK and Eire, to both
government and commercial
customers. The Recruitment division
(previously “Staffing” division)
supplied up to 52,000 workers per
day in 2017 to more than 1,500 clients.
The PeoplePlus division is a leading
provider to both central and local
government, as well as commercial
customers, offering a wide range of
services to help and support in the
Employability (Welfare to Work),
Justice, Communities and
Skills arenas.
Locations across UK, Eire and Poland
400+
UK market share
9%
Recruitment
Strong growth potential:
Specialising in providing complete labour
solutions in agriculture, food processing,
manufacturing, e-retail, driving and the
logistics sectors, the Recruitment
business operates from over 400
locations in the UK, Eire and Poland.
The Recruitment services include:
• Staffline OnSite, based on clients’
premises and providing both blue and
white collar, managed, temporary
workforces
• Driving Plus, providing HGV drivers
to the driving industry
• Staffline Agriculture, providing workers
to the UK farming and horticulture
sectors
• Staffline Express, our high street
branch based operation
• Brightwork, a recruitment business
based in Scotland specialising in
temporary and permanent jobs to
the drinks industry
• Diamond Recruitment, one of the
largest providers of recruitment
services in Northern Ireland
Priorities for next five years:
• Continue run rate double-digit growth
and increase market share from 9%
to 15%
• Maintain focus on core blue collar
industrial temp staffing
• Use technology to enhance competitive
position
• Appropriate expansion into adjacent
verticals and geographies
Staffline Group plc Annual Report 2017 Overview
Strategic Report
Corporate Governance
Financial Statements
5
Work Programme performance
All 9 contracts in
top 10 nationally
New contract wins in 2017
£54m
PeoplePlus
Established platform, strong credentials:
A trusted partner in delivering employability,
skills and well-being services. Contracts
span Central, Local and Devolved
Government and the Private Sector,
including:
Employability:
• Work Programme, prime contractor in nine
regions and sub-contractor in three
regions in England and Wales
• Fair Start Scotland, prime contractor in
two regions commencing April 2018
• New Enterprise Allowance (business
start-up support), prime contractor in
three regions of England and Scotland
and a sub-contractor in Wales
• Steps to Success, prime contractor in
Northern Ireland, an employment
programme to build skills
• Tackling youth unemployment through the
MyGo service in Suffolk, the Youth
Promise Plus in Birmingham and the Wirral
Youth Employment Gateway
• Building employment through education,
working in schools in Northern Ireland
Education and training services:
• Prime contractor to the Education and
Skills Funding Agency, Welsh Government
and Skills Development Scotland,
providing adult education and
apprenticeships
• Delivering apprenticeships programmes
for the private sector, via the
Apprenticeship Levy and non-levy
programmes
Justice and community services:
• Ministry of Justice, Transforming
Rehabilitation in Warwickshire and West
Mercia, delivering rehabilitation services
• Delivery of education and training to
prisoners in ten prisons in the east of
England and London
• Independent Living Services, supporting
3,500 disabled people lead independent
lives
• Access To Work, a national contract
providing adaptation in the workplace for
people with disabilities
• Support for the users of Prison Visitor
Centres for the Northern Ireland Prison
Service
• Carers Hubs in Stoke and Staffordshire
Priorities for next five years:
• Firmly establish replacement revenue
streams in place of the Work Programme
• Continue to build a balanced portfolio of
contracts of various sizes and run-off
profile
• Reduce dependence on central
government policy by expanding into the
private sector and local/devolved
government
6
Chairman’s
statement
A year
of growth
Performance
2017 was the final year of our five-year
plan to “Burst the Billion”, aiming to
grow Group revenues to over £1bn by
2017. Group revenues of £957.8m (2016:
£882.4m), up 9%, leaves us just short
of this target. However, the exiting run
rate of 2017 exceeds this target and
remains a significant achievement
compared to the starting point of
revenues of £367m in 2012, when the
five-year plan began. The five-year
underlying operating profit target of
£30m was comfortably exceeded, being
achieved two years early, in 2015.
Underlying profit before tax* reduced
by 1% to £36.3m (2016: £36.7m). Whilst
a reduction, this is a good achievement
given the Work Programme run-off
in PeoplePlus that began in March
2017. Reported profit before tax
increased by 28% to £24.1m (2016:
£18.9m), primarily due to exceptional
reorganisation costs incurred in
2016 not being repeated in 2017.
Cash generation was again strong,
with free cash flows (being EBITDA plus
working capital movement, less tax paid
and capex) amounting to £37.9m. Net
debt** fell by £20.2m, from £36.7m at
the end of December 2016 to £16.5m
at the end of December 2017. This
provides the Group with a solid base
from which to continue to generate
shareholder value into the future.
* Underlying profit before tax excludes amortisation
of intangible assets arising on business
combinations, acquisition and exceptional
reorganisation costs, and the non-cash charge/
credit for share based payment costs (“SBPC”)
** Net debt including unamortised transaction costs
John Crabtree OBE
Chairman
Revenue growth
+8.5%
Dividend growth
+3.5%
Our Recruitment division has again seen
significant organic revenue growth, of 10%,
and, with two further acquisitions in 2017,
their total revenue has increased by 14%,
achieved against the backdrop of
uncertainty around Brexit and the impact
that it has had on lowering migration. Our
PeoplePlus division has met the challenge of
delivering the final years of the existing Work
Programme, continuing to be the best
performing supplier to the DWP and
positioning itself to become a leading
supplier of Apprenticeship Levy training.
Other opportunities during 2017 included
winning the Fair Start programme in
Scotland.
Staffline Group plc Annual Report 2017 7
Key priorities for the
two divisions in 2018 are:
Recruitment:
• Continued organic growth – focus on
our core business
• Continued strong cash conversion –
focus on margin and payment terms
• Bolt on acquisitions – enhancing
continued organic growth
• New digital platform – differentiation
in a tight labour market
PeoplePlus:
• Optimisation of Work Programme
business
• Deliver growth in our Prisons’ Offender
Learning and Skills Services contracts
• Develop and grow private skills market
business through the Apprenticeship
Levy
• Develop and grow our presence in
Wales, Scotland and local government
• Develop new market propositions in
health and wellbeing and corporate
learning and development
Despite the change in sales mix within
PeoplePlus, we expect the Group’s 2018
profit to be slightly higher than in 2017.
Continued strong cash generation should
either result in net debt being eliminated in
2018 or provide the resources to acquire
additional businesses. The Group is in an
excellent position to continue to generate
shareholder value through growing
cashflows in future years.
John Crabtree OBE
Chairman
23 January 2018
Dividends
The Group is in a robust financial position
with good cash generation and a strong
balance sheet. Our financial position at the
end of 2017 and confidence for the future
enables us to propose an increased final
dividend of 15.7p (2016: 15.3p), payable on
Tuesday 3 July 2018. The Group’s dividend
policy, whilst in a net debt position, is to
maintain a dividend cover ratio of between
4.0 and 4.5 times our underlying diluted EPS.
Our proposed final dividend will ensure the
full year dividend cover is within this range
at 4.22 times. Further details on the Group’s
dividend policy can be found within the
Chief Financial Officer’s Report on page 23.
Board changes and
senior management overview
I am pleased to announce that, with
effect from 24 January 2018, Chris
Pullen is appointed as Chief Executive
of Staffline Group plc. Chris succeeds
Andy Hogarth who will step down from
his current role while remaining on the
Board as a Non-Executive Director.
Andy Hogarth has been Chief Executive of
Staffline Group plc since 2003, during which
time the Group has grown to almost £1bn in
revenue. The Recruitment business is now
the largest blue collar OnSite business in
the UK. The PeoplePlus business supports a
large portfolio of contracts across central,
local and devolved government, focusing
on People, Skills and Jobs, and is the
largest provider of the Work Programme in
the country. I am delighted that Andy will
continue to lend his considerable experience
and insight to Chris and the Board in his
new role as a Non-Executive Director.
Chris Pullen joined the Group in 2015 from
Regus plc to develop the Group’s Mergers
and Acquisition strategy and became Group
Chief Financial Officer in June 2016. In
these roles, Chris has made a significant
contribution to the development of the
Group and now has an excellent insight into
the Group’s overall operations. He is ideally
positioned to lead the business through
its next stage of strategic development.
I can also report that Diane Martyn, Group
Managing Director, is stepping down
from the Board on 24 January 2018, but
will continue to work with the Group on a
part-time basis to support the strategic
goals of the business. Diane has also
made an immense contribution to the
Group’s success, and we are delighted
she will continue to be part of it.
Mike Watts is appointed as Group
Chief Financial Officer with effect
from 24 January 2018. He joined our
PeoplePlus division as Finance Director
in February 2017 where he has already
made an excellent contribution to the
business. Prior to Staffline, Mike was at
Capita plc where he was Finance Director
of a number of businesses. Mike is a
Chartered Accountant, having qualified
with PwC and has a Ph.D from Cambridge
University in Materials Science.
The Group has developed an extremely
experienced senior management team
under the PLC Board, and has the
right leadership capability in place to
achieve the strategic objectives of our
Recruitment and PeoplePlus divisions.
Simon Rouse joined the Group in
November 2017 as Managing Director
of PeoplePlus from Capita, where he
was a Portfolio Managing Director,
leading a number of contracts across
both the private and public sector.
Mark Underwood joined the Group
in 2012 and has been Managing
Director of the Specialist Recruitment
Businesses (Driving Plus, Agriculture
and Branch network operations).
These have been key to the success of
Recruitment’s “new division” strategy.
Mark is now appointed as Managing
Director of our Recruitment division.
I am delighted that we have an experienced
management team in place to deliver the
Group’s next development plan. Most
members of the team have worked together
for a considerable time and have vast
knowledge of Staffline, our customers and
the markets in which we operate. I would
also like to thank the whole team for all their
continued efforts, support and contribution.
Outlook
For a number of years now, the Group has
maintained its objective of being the largest
provider of people in the UK blue collar
market, with specialist knowledge of the
food, logistics/driving and manufacturing
sectors. The Board and I are confident
that the Recruitment division can continue
to grow its market share through further
organic growth, as well as suitable
acquisitions which strengthen our offering.
The restructuring of PeoplePlus has
positioned the division well to provide a
strong Apprenticeship Levy offering, as well
as being agile enough to take advantage
of other opportunities in the employability,
justice and wellbeing sectors. Similar to
2017, 2018 is seen as a transitional year
for this division, with the Work Programme
revenues tailing off and the further
development of our Skills, Employability
and Health and Wellbeing offering.
OverviewStrategic ReportCorporate GovernanceFinancial Statements 8
Group
strategy
Our
strategy,
vision and
values
Enabling the
future of work™
Provision of more flexible workforces.
Building a skilled workforce for the future.
Through our Recruitment division:
• Helping society as people increasingly
want to work with more flexibility,
when they want and where they want.
We provide this flexibility and choice
Through our PeoplePlus division:
• Helping people into sustainable work
• Building a skilled workforce for the
future and developing careers
• Rehabilitating offenders into society
• Helping our customers to be more
and the workplace
efficient by providing flexible
workforces, when they want and where
they want. Underpinned with strong
compliance and ethical standards
• Enabling a healthy and diverse
workforce and support for
independent living
Staffline is a values-based organisation
which exists to help our customers be more
successful. We have a clear set of values
that drives everything we do. These values
influence the way we act, interact with
staff, clients and candidates on a daily
basis and can be measured in the strong
results that we consistently achieve.
Our ultimate aim is to ensure that doing
business with us is simple and enjoyable,
whether you’re a jobseeker or employer.
Staffline Group plc Annual Report 2017 9
Our vision
and values
Our Group vision is to build and develop
the most reliable integrated workforce in
the country and be the leading creator of
opportunities, jobs and new ideas in the
employability, skills and justice sectors.
We do this through our brand values of:
• Teamwork: working together
across the business to
achieve more for our
customers
• Respect: taking time to
understand, trust and
support each other to
achieve shared success
• Commitment:
demonstrating a relentless
and driven ambition
to exceed expectations
• Reliability: fulfilling all our
customer requirements,
getting the job done
• Creativity: solving problems
and suggesting new ideas
and insights
• Integrity: doing things the
right way, for the right
reason, ethically, honestly,
every time
These values are driven by the
Board and are at the heart
of all our processes and
decisions.
Our
principles
To achieve our vision, deliver
our strategy and live our values,
we follow a set of guiding
principles in all that we do:
Our team
• To provide a great place
to work
• To create lots of
opportunities to develop
and progress
• To offer fast-paced and
rewarding work
• To have an ever-changing
environment. Every day
brings something new
• To recognise success
Growth and profitability
• To operate ethical, commercial
practices
• To implement efficiency-driven
cost models
• To create profit through
building long-term
relationships
• To support sustainable growth
• To deliver returns for our
shareholders
People
• To protect people and
their interests by acting
responsibly at work and
in the community
• To find lots of job
opportunities, every day
of the week
• To provide jobs on the
doorstep
• To offer training,
apprenticeships and
guidance
• To work with reputable
companies
Employer partner
• To fill every job with the right
person at the right time
• To listen, understand,
respond and get results
• To do things the right way
for the right reason
• To improve performance for
our customers through our
added value services
• To get the job done
OverviewStrategic ReportCorporate GovernanceFinancial Statements 10
Chief Executive
Officer’s statement
Andy Hogarth
Chief Executive Officer
Trading
Sales in 2017 grew by 9% to £957.8m
(2016: £882.4m). A change in the sales
mix between the two divisions, with
Recruitment accounting for 88% of
the 2017 revenue (2016: 84%), has had
a comparative impact on the Group’s
gross profit margin, with a reduction
from 14.2% in 2016 to 11.9% in 2017.
Underlying profit before tax* reduced
by 1% to £36.3m (2016: £36.7m). On
this basis, adjusted diluted earnings
per share fell to 112.6p (2016: 114.0p), a
reduction of 1%. However, reported profit
before tax from continuing operations
increased by 28% to £24.1m (2016:
£18.9m) and reported diluted earnings
per share from continuing operations
rose by 21% to 71.1p (2016: 58.8p).
* Underlying profit before tax excludes
amortisation charges from intangible assets
arising on business combinations, acquisition
and exceptional re-organisation costs, and the
non-cash charge/credit for share based
payment costs (“SBPC”)
Key Performance Indicators (“KPIs”)
The Group monitors a number of
performance indicators both financial
and non-financial. These indicators are
discussed in this report, and are set out
in the table below.
KPIs
Revenue
Year-on-year total revenue growth
Organic revenue growth
Gross profit margin as a % of revenue
Recruitment division gross profit
2017
£957.8m
8.5%
4.9%
11.9%
£66.1m
Recruitment division gross profit margin to sales
7.8%
Underlying Profit Before Tax*
£36.3m
Underlying Profit Before Tax as a % of revenue
3.8%
Net Debt including unamortised transaction costs
£16.5m
Recruitment services DSO (days) – year end
Highest number of temporary contractors
Number of Recruitment OnSites (year end)
23.4
52,400
395
2016
£882.4m
25.6%
11.7%
14.2%
£61.3m
8.3%
£36.7m
4.2%
£36.7m
23.3
51,100
357
Staffline Group plc Annual Report 2017 11
Recruitment division revenue growth
9.5%
Recruitment division gross profit
£66.1m
(2016: £61.3m)
Highest number of temporary
contractors (per week)
52,400
Number of Recruitment OnSites
(year end)
395(2016: 357)
The ongoing uncertainty around the final
Brexit outcome has had an impact on UK
consumer spend, specifically within the
fashion and food sectors. This has made
supermarket and high-street store demand
volatile. As a result, our growth in these
areas has slowed down. This has meant
that our 10% organic growth has been
achieved through new customers in both
the core and newer divisions. For example,
our largest single-site customer (by volume)
was a brand new Staffline customer in 2016,
where our business has continued to grow
in 2017 due to our excellent service levels.
The uncertainty around the final Brexit
outcome has also seen a reduction in the
number of EU citizens coming to the UK
and an increase in those returning to their
homelands. In addition, UK unemployment
rates at 42-year lows have impacted on
our ability to attract candidates. However,
our scale of operations, our excellence in
both candidate attraction and retention
and our ability to offer additional training
through PeoplePlus have meant that we
have been able to mitigate any temporary
shortfalls in available candidates.
As we face the challenges of a tightening
labour market and the competition for
talent intensifies, we are placing even
greater emphasis on the job seeker
experience. Customer experience and
employee engagement are at the heart
of our business model, and job seekers
are increasingly choosing Staffline due
to the emphasis we place on using our
scale for good. By using our vast network
and resources to provide fast, flexible and
long-term employment across thousands of
roles, we offer applicants unprecedented
choice and variety of work assignments
as we introduce thousands of job seekers
to the most suitable employers via simple
and easy to use applications. We have
invested in a digital transformation
programme which reflects changes in
job seeker behaviour with emphasis
on search engine optimisation, and we
anticipate a considerable return on this
investment during 2018, by way of increased
applications and brand awareness from
both active and passive job seekers.
Recruitment
Recruitment sales rose by 14%,
to £843.3m (2016: £740.8m),
driven both by organic growth
of 9.5% and by the acquisitions
of Driver and Labour Recruit
Limited (trading as “Oak
Recruitment”) in the Republic of
Ireland and Brightwork Limited
(“Brightwork”) in Scotland in the
first half of 2017. All our OnSite
divisions saw good organic
growth in the year.
Our Recruitment gross profit margin,
expressed as a percentage of sales,
decreased by half a percent from 8.3% to
7.8% – more than half of which was due
to an increase in the minimum wage. A
more meaningful metric is the cash margin
per hour which rose in the year by +1.2%.
The increase in margin per hour reflects
the increased scale and diversity of our
customer base. The above factors resulted in
gross margin increasing by 7.8% from £61.3m
to £66.1m. During the year, we invested
heavily within Recruitment, specifically
on IT infrastructure and new senior talent,
which saw overheads rise by 7.9%, the net
result of which is that underlying operating
profit, before finance charges, increased
by 7.4%, to £20.2m (2016: £18.8m).
We continue to generate significant
opportunities for the Group to build market
share in our core business, underpinned
by our rigid adherence to compliance,
ethical approach and ability to deliver to
our customers. Customers are increasingly
looking for suppliers with scale and added
value products, such as worker retention
models, apprenticeships and bespoke
training. This has meant that we have
continued to win new business in line with
prior year levels of growth. The number of
OnSite locations from which we operate
grew by net 38, ending the period with
a total of 395 locations. 14 of those wins
were within our core OnSite divisions,
with 17 in our newer divisions (Agriculture,
Driving, Ireland) and seven acquired
with Brightwork. This demonstrates that
Staffline’s geographical and operational
scale means we remain the go-to
supplier across most industry sectors.
OverviewStrategic ReportCorporate GovernanceFinancial Statements 12
Chief Executive
Officer’s statement
Continued
PeoplePlus revenue
£114.5m
(2016: £141.6m)
PeoplePlus underlying operating profit
£18.9m
(2016: £21.2m)
PeoplePlus reported operating profit
£12.2m
(2016: £2.5m)
PeoplePlus
PeoplePlus revenues decreased
by 19% to £114.5m (2016:
£141.6m) in 2017. This has been
driven by the much-publicised
start of the wind down of the
Work Programme following the
end of referrals in March 2017.
Gross profit reduced by £15.9m to £47.7m
(2016: £63.6m), with the gross profit
margin falling from 45% to 42%. We have
successfully managed overhead costs,
saving £13.6m year on year. This has mostly
offset the fall in revenues, with operating
profit, before finance charges, only reducing
by £2.3m (11%) from 2016, improving the
operating margin to 16.5% (2016: 15.0%).
PeoplePlus is built on three key
themes of helping people to:
• Transform lives – through our work in
justice services and adult social care
• Get jobs and keep jobs – through our work
with youth employment programmes,
employability programmes across the UK,
including helping people set up their own
businesses
• Develop careers – through our work in
Apprenticeships and Adult Education
On the Work Programme, following the end
of referrals in March 2017, we have focused
on effective and efficient operational
delivery to counter the revenue decline
through to March 2021. Our focus on
delivery has resulted in our nine contracts
being in the top ten performers nationally,
a further improvement on the prior year’s
strong performance. The revenue reduction
was forecast, and this allowed us to make
significant savings in overheads through
changes in our operating model. This has
allowed us to maintain strong profitability
in the Work Programme during 2017,
which we expect to continue in 2018.
The Apprenticeship Levy, introduced
in April 2017, has created a huge new
market for apprenticeship delivery.
Whilst the overall market growth in
apprenticeship numbers is significantly
below government expectations, we
feel that this market still represents an
excellent growth opportunity, and we
have aligned ourselves accordingly.
Our strong offering has seen us sign a
number of new contracts in 2017, and we
are continuing to build a strong pipeline
into 2018. These existing clients will
provide organic year-on-year growth.
This, coupled with expected new wins in
2018, will allow us to take advantage of
a growing market, estimated to be worth
£3bn per annum. We also believe this will
create a good foothold for us into the
private sector market overall, where we
want to develop new market propositions.
The Adult Education division was given
a 2 rating (“Good”) by Ofsted during
2017, a clear reflection of the very high
quality of our training provision. Business
performance has been strong, with
growth in existing contracts following
the government re-tender and our ability
to deliver against these remains high
positioning us well for further growth. We
were awarded over £10m of new Adult
Education Budget funding during the year.
Our Independent Living Services (“ILS”)
and Carers Hubs have continued to
perform well, with ILS managing £40m
of direct payments from councils on
behalf of local care recipients; enabling
them to live more independently. With
demand on adult social care growing
and representing a challenging budget
area for local authorities, we continue
to seek opportunities to further
develop our services in this area.
Our focus on new business has allowed
us to secure £54m (2016: £13m) of new
business in 2017, with an improved win
rate of 1 in 3 (2016: 1 in 6). This includes
£24m for Fair Start Scotland, the
Scottish Government’s key employability
programme, which commences in April
2018, and New Enterprise Allowance
2 at £9m, which supports individuals
wishing to start in self-employment.
Staffline Group plc Annual Report 2017 13
Our first Peak Performance Camp
was held with senior leaders across
the business in February 2017. This
has resulted in some strategic projects
taking place to explore more business
opportunities for growth. A master class
event was held in our PeoplePlus business
during November 2017 to enhance
the understanding and knowledge of
our senior managers in growing their
individual business areas. Our next annual
Leadership Camp for our leaders of the
future will take place in February 2018.
As the Apprenticeship Levy came into force
this year, Recruitment and PeoplePlus
divisions have worked collaboratively to
develop our programme, with our first
60 delegates embarking on a three-day
residential at Nottingham University to start
off on their apprenticeship programmes
in June 2017. 24 new delegates joined
the programme in November 2017 with
a further 40 planned for January 2018.
These apprenticeships are aimed at
our first line managers, enhancing
their skills and capability to be the best
they can be, delivering results through
others, learning more about business
improvement techniques and customer
excellence. A Level 5 management
development programme is also planned
for 12 delegates in early 2018 to support
our current “high potential” managers
grow to become leaders of the future.
Our Community Rehabilitation Company
(“CRC”) contract continues to perform
well against its contractual targets, and is
evolving in line with HMIP recommendations
and contractual changes being introduced
by the Ministry of Justice. The Offender
Learning and Skills Services ("OLASS")
contract has seen us draw down the
maximum revenue available against a
challenging environment, and reflects
the quality of our delivery and strong
relationships with prison service leadership.
This high level of performance will put us
in a strong position for the next iteration
of these contracts, which are a strategic
priority for us as we look to grow in the
offender learning and skills market.
PeoplePlus Northern Ireland has successfully
tendered for, and been awarded, European
Social Funding. This project will further
develop our skills and employability offering
across the province. Existing programmes
in Employability, Community and Justice
sectors continue to perform at projected
levels. Our Apprenticeship Northern Ireland
provision is realising growth, with several
national branded businesses committing
to work in sole partnership to upskill their
workforces across Northern Ireland. There
is a strong pipeline of new opportunities for
further growth in the apprentice market.
PeoplePlus Wales performed strongly
throughout 2017, exceeding our
expectations in all areas, including Youth
Programmes, and expects to be confirmed
as the top performing provider in Wales
when government learner outcome
reports are published. This positions
PeoplePlus Wales well for the 2018 round
of tendering by the Welsh Government
of youth and adult programmes.
ISO 9001, ISO 27001 and
Investors in People (“IIP”) accreditations
Our organisation has grown significantly
over the last decade, both organically
and through acquisition. To ensure that
we maintain control over our processes,
we have renewed our accreditations
to both ISO 9001, accreditation for our
management systems, and Investors in
People (“IIP” – Recruitment division), to
ensure that we continue to motivate and
develop our staff. The PeoplePlus business
has achieved ISO 27001 “Cyber Essentials
Plus” accreditation during the year for the
security of its IT systems, which represents
an important certification given that we
deal with the personal details of many
hundreds of thousands of people.
People
Our focus on driving a high-performance
culture continues and, as we see our talent
pipeline develop, the Group continues to
review succession planning at all levels to
support our agility and to enable further
growth. As a commercially focused business,
we regularly review our headcount to ensure
that our lean operating model is fit for
purpose. The consolidation of headcount
across the business at 31 December 2017,
shows a permanent workforce total of
2,265 people (full-time equivalents), a net
reduction of 220 compared to 2,485 as at
31 December 2016 (movement includes an
increase of 80, relating to acquisitions in
Scotland and the Republic of Ireland during
the year). Average monthly headcount
has fallen by a net 16% during the year,
from 2,793 in 2016 to 2,357 in 2017.
Developing our people is key to us as
an organisation and we have many
ways of encouraging this. Our ethos
supports nurturing talent within the
business at all levels and encourages
self-development, which in turn aids
succession planning, supporting the
strategic growth of the Group. We continue
to place great emphasis on the training
and development of our people, and we
review our training needs on an ongoing
basis in line with our vision, values and
ambition to be an employer of choice.
OverviewStrategic ReportCorporate GovernanceFinancial Statements
14
Chief Executive
Officer’s statement
Continued
Gender Pay Gap Reporting (“GPGR”)
Our April 2017 GPGR review has almost
been completed and we are aiming to
put the results on our website by no later
than the middle of February 2018.
Health, safety and environment
Staffline continues to take a proactive
approach to the health, safety and
welfare of its employees and contractors.
Our commitment to health and safety
is strong, and is demonstrated by the
regular reviews taking place by senior
management; the outcomes of which
are cascaded across the business.
Staffline actively monitors all aspects
of health and safety using “closed loop
management processes”. This allows all
areas to be identified and documented
during the audit process and shows
continual development against all
health and safety action plans, with
senior management involvement
throughout. The Group’s health and
safety management systems are reviewed
annually to ensure they remain aligned
to the needs of the business, and allow
the Group to know and demonstrate
that our corporate responsibilities are
being appropriately discharged.
Compliance
We take compliance with legislation and
industry standards extremely seriously. We
offer a total commitment to all our clients,
ensuring that all our workers, whether or
not they are working in areas covered by
the legislation, are recruited and supplied to
the standards required by the Gangmasters
and Labour Abuse Authority (“GLAA”). Our
commitment gives our clients the assurance
that all UK ethical and legal standards
are met in full at all times. We operate a
confidential helpline for our workers to
report any concerns and conduct regular
surveys to ensure we are achieving our
own high standards. We are a business
partner, active member and supporter of the
“Stronger Together” initiative to help prevent
exploitation and trafficking of workers. We
actively work with our clients to encourage
strong partnerships with the authorities
to collaborate to help reduce the risk of
modern slavery in our supply chains. We
are also actively engaged with anti-slavery
networks to collaborate to help reduce
modern slavery taking place in the UK.
General Data Protection Regulation
(“GDPR”)
Staffline will comply with applicable
GDPR regulations when they take effect in
2018, including as a data processor, while
also working closely with our providers
of finance, customers and partners to
meet contractual obligations for our
procedures, products and services.
Our governance measures will be
comprehensive but proportionate, with
the aim of minimising the risk of breaches
and to uphold the protection of personal
data. Our Data Protection Officer
will inform and monitor compliance,
and the Company will implement
tools as appropriate that support the
process, provide necessary security
and ongoing delivery of objectives.
Work is currently underway to build
transition plans for all our systems and
processes to ensure that the changes
are managed effectively and without
causing interruption to our normal
business routines. Internal awareness
campaigns and staff training activities
will launch at the start of 2018.
Events after the balance sheet date
There were no events between the balance
sheet date of 31 December 2017 and the
approval of these accounts on 23 January
2018 that are required to be bought to
the attention of the shareholders.
Five-year plan
Although we narrowly missed our
internal target set in 2013 of achieving
£1bn revenue in 2017, we significantly
exceeded the underlying operating profit
target of £30m. The past five years has
seen significant growth in both revenue
and underlying operating profit:
• Turnover up £591m, a Compound
Annual Growth Rate (“CAGR”) of 21%
• Underlying operating profit up £28m,
a CAGR of 29%
It is worth highlighting that the current
run rate based on revenues in the second
half of the year is in excess of £1bn.
Staffline Group plc Annual Report 2017 15
Last five years underlying operating
profit CAGR
29%
Next five years targeted underlying
diluted EPS growth
77%
Our new plan, the fourth since we became
a listed Company, is during the next five
years to grow underlying diluted Earnings
Per Share to 200p, a 77% increase on
the 112.6p reported this year. To achieve
this target, we will continue to achieve
strong organic growth. In addition, we will
continue to seek further acquisitions in either
current or complimentary new sectors.
Current trading
Nearly one month into the new financial
year, we have started well, buoyed by
additional contracts, largely from existing
Recruitment customers, all of which are due
to start by the end of the first quarter. We
also have a sales pipeline which is larger
than ever before, and we are focused on
maintaining our strong track record of
organic growth by supporting our clients’
requirements effectively and efficiently.
Meanwhile, our PeoplePlus division is
well placed to benefit as new contract
opportunities come through this year,
in Welfare to Work, Justice with OLASS,
Wellbeing and as a consequence of the
Apprenticeship Levy. In addition to driving
organic growth, we continue to look for
further bolt-on acquisitions, primarily within
our Recruitment division, and remain in
discussions with a number of companies.
On a personal note, this is my 15th and
final annual Chief Executive’s Statement.
I am delighted that Staffline has such an
excellent internal successor to me in Chris
Pullen. We have worked closely for the
past two years and share a vision for the
continued success of the Group and the
people who work with it, and I wish him and
his executive team all the best for the future.
I will continue to support both the business
and the executive team in any way I can in
my new role as a Non-Executive Director.
Andy Hogarth
Chief Executive Officer
23 January 2018
OverviewStrategic ReportCorporate GovernanceFinancial Statements 16
Recruitment
“ We are a leading
workforce recruitment
and management
organisation,
specialising in labour
solutions in agriculture,
food processing,
manufacturing,
e-retail, driving and
the logistics sectors.”
Our vision is to Enable the Future of Work by helping society as
people increasingly want to work with more flexibility, when they
want and where they want and helping our customers to be more
efficient by providing flexible workforces, when they want and
where they want
Staffline Group plc Annual Report 2017 17
Revenue
£843.3m
Up +13.8% (2016: £740.8m)
Underlying operating profit
£20.2m
Up +7.4% (2016: £18.8m)
• Continued expansion of the OnSite model,
increased by 38 sites during the year.
• Takes the total to 395 (December 2016: 357)
• Integrated Brightwork (Scotland) and Oak Recruitment
(Republic of Ireland) acquisitions in 2017, increasing our
market presence in both countries.
• Supplied 76.4m hours of temporary labour
(2016: 67.2m) to more than 1,500 clients.
• 52,400 temporary workers placed at ‘peak’.
• 2,440,000 contractors placed during the year
(weekly average 46,850); an increase of 6% on 2016.
• Checked the ID’s of 150,400 candidates,
a 4% increase on 2016.
Recruitment revenue profile 2017
£843.3m
40% Food, agriculture
7% Ireland
21% Logistics
10% Driving
9% Manufacturing,
automotive
7% Express
3% Brightwork
3% Others
Recruitment revenue profile 2016
£740.8m
44% Food, agriculture
7% Ireland
21% Logistics
10% Driving
9% Manufacturing,
automotive
8% Express
0% Brightwork
1% Others
OverviewStrategic ReportCorporate GovernanceFinancial Statements 18
PeoplePlus
“ Our vision is to be
the leading creator
of opportunities, jobs
and new ideas in the
employability, skills
and justice sectors.”
In 2017 Ofsted awarded PeoplePlus a Strong Grade 2 rating
Staffline Group plc Annual Report 2017 19
Revenue
£114.5m
Down (19.1%) (2016: £141.6m)
Underlying operating profit
£18.9m
Down (10.8%) (2016: £21.2m)
• WayOut TV learning service now available to over
12,000 prisoners.
• Assisted over 6,800 people in starting a new business
during the year.
• Supported 5,100 young people (16-24) into
employment.
• Over 30,000 learners trained during the year.
PeoplePlus revenue profile 2017
£114.5m
49% Work programme
13% Skills services
9% Employability
20% Justice services
5% Independence
services
4% Northern Ireland
PeoplePlus revenue profile 2016
£141.6m
52% Work programme
10% Skills services
12% Employability
17% Justice services
5% Independence
services
4% Northern Ireland
OverviewStrategic ReportCorporate GovernanceFinancial Statements
20
Chief Financial
Officer’s statement
A year
of steady
growth
Cash exceptional costs
Nil
(2016: £6.7m)
Underlying diluted earnings per share
112.6p
(2016: 114.0p)
2017 has been a year of steady growth,
with total revenue for the year increasing
by 9% to £957.8m (2016: £882.4m). Of
this revenue growth, 5% is organic,
despite PeoplePlus revenues falling by
19% year on year, attributable to the
existing Work Programme closing to
new job seekers from March 2017. The
remaining revenue growth has been
achieved through the continued increase
in the number of Recruitment OnSites
and from the strategic acquisitions of
Brightwork Limited in Scotland and Driver
& Labour Recruit Limited in the Republic
of Ireland. Both acquisitions increase our
presence in their respective countries.
Revenues in our Recruitment division
grew by £102.5m (up 14%), of which
£70.2m (up 10%) is organic growth.
Reported profit before taxation grew by
28% to £24.1m (2016: £18.9m), primarily
due to exceptional reorganisation costs
incurred in 2016 not being repeated in
2017, whilst underlying profit before
taxation reduced marginally, in line
with expectations, by 1% to £36.3m
(2016: £36.7m), and underlying profit
before taxation as a percentage of
revenue fell to 3.8% (2016: 4.2%).
Non-underlying administrative charges
Non-underlying administrative charges
have reduced by £5.6m to £12.2m in
2017 (2016: £17.8m). These charges are
regarded as recurring or non-recurring
items of income or expenditure of a
particular size and/or nature relating to
the operations of the business that, in
the Directors’ opinion, require separate
identification. These items are included in
“total” reported results but are excluded
from “underlying” results. These items
can vary significantly from year to year
and therefore create volatility in reported
earnings which does not reflect the
Group’s underlying performance. They
include exceptional restructuring costs
in 2016 of forming and reorganising
the PeoplePlus division, share based
payment charges and credits and the
amortisation of intangible assets arising
on business combinations, being either
non-recurring or material in the context of
our trading performance during the year.
Chris Pullen
Chief Financial Officer
In the reporting of its financial performance,
the Group uses certain measures that
are not defined under IFRS, the Generally
Accepted Accounting Principles (“GAAP”)
under which the Group reports. The
Directors believe that these non-GAAP
measures assist with the understanding
of the performance of the business. These
non-GAAP measures are not a substitute
for, or superior to, any IFRS measures
of performance but they have been
included as the Directors consider them
to be an important means of comparing
performance year-on-year and they include
key measures used within the business for
assessing performance. We acknowledge
that the adjustments made to arrive at
underlying profit may not be comparable to
those made by other companies, mainly in
respect of the adjustment for share based
payment charges, including both equity and
cash settled components. It should be noted
that whilst the amortisation of intangible
assets arising on business combinations
has been added back, the revenue from
those acquisitions has not been eliminated.
Our overall gross profit has decreased
by 9% to £113.8m (2016: £124.9m), with
gross profit margins reducing to 11.9%
(2016: 14.2%). This reduction is a result of
the change in sales mix, with PeoplePlus
revenues falling (divisional margin of
41.7%) and Recruitment revenues growing
(divisional margin of 7.8%). The Recruitment
division gross margin has declined to 7.8%
(2016: 8.3%), primarily as a result of the
National Living Wage increase in April 2017
(no effect on absolute gross profit). This
factor has become a regular feature of our
Recruitment gross margin profile and will
continue, with the Government planning to
increase the National Living Wage from the
current £7.50 for over 25s to £9.00 by 2020.
Staffline Group plc Annual Report 2017 Banking facility headroom
£54m(2016: £42m)
Free cash flow conversion of
underlying operating profits
97%(2016: 90%)
Year-end net debt
£16.5m
(2016: £36.7m)
21
Non-underlying administrative charges
Amortisation of intangible assets arising on business
combinations
Share based payment charges/(credit)
Transaction costs
Reorganisation costs
Impairment of tangible fixed assets (reorganisation
related)
2017
£’m
8.8
3.4
–
–
–
12.2
2016
£’m
12.4
(2.9)
0.1
6.6
1.6
17.8
The charge for amortisation of intangible
assets arising on business combinations in
2017 relates principally to the acquisition
of the A4e business (£5.6m charge: asset
will be fully amortised by February 2019),
Milestone (£1.0m charge: asset will be
fully amortised by September 2020) and
Diamond (£0.6m charge: asset will be fully
amortised by September 2020) businesses
in 2015, together with the Avanta business
acquired in 2014 (£1.1m charge: asset fully
amortised by the end of 2017). The share
based payment charge in 2017 arose
principally due to the 23% increase in the
Company’s share price during the year
from £8.45 to £10.40. The reorganisation
costs noted above for 2016 relate to the
integration of acquisitions to form the
PeoplePlus division. This process was
started in 2015 and completed in 2016.
Earnings per share
Statutory basic earnings per share increased
by 21% to 71.4p (2016: 59.1p) and the diluted
earnings per share increased to 71.1p (2016:
58.8p). A lower underlying profit before tax
(£0.4m lower than 2016) and higher share
based payment charges (£6.3m higher in
2017) were more than offset by a lower
charge for the amortisation of intangible
assets arising as business combinations
(£3.6m lower than 2016) and no exceptional
reorganisation related charges in 2017
(£8.2m lower than 2016). In addition, our
finance charges have reduced (£0.5m
lower than 2016) as we repay our term loan,
but our tax charge is higher than 2016 by
£1.9m due primarily to the tax allowability
of the exceptional reorganisation
costs in 2016 (no charges in 2017).
Removing non-cash charges for share based
payment charges, amortisation of intangible
assets arising on business combinations
and the exceptional costs of reorganisation
(and their respective taxation impacts)
results in an adjusted basic earnings per
share decrease of 1% to 113.2p (2016: 114.7p)
and an adjusted diluted earnings per share
decrease of 1% to 112.6p (2016: 114.0p).
Statement of financial position,
cash generation and financing
The Group statement of financial position
has not changed significantly during the
year. Total Group assets have increased by
£13.2m to £263.5m (2016: £250.3m), due to
increased cash (up £11.6m) and trade and
other receivable balances (up £4.5m). The
trade and other receivables increase is due
to balances acquired on the purchases of
Brightwork and Oak Recruitment businesses
during the year. Days Sales Outstanding
(“DSO”) at 31 December 2017 within the
Recruitment division remained low at 23.4
days (31 December 2016: 23.3 days).
Free cashflows, being underlying EBITDA
plus working capital movement, less tax paid
and capex, amount to £37.9m in 2017 (2016:
£36.0m). The Group’s free cash conversion
of 97% (2016: 90%) continues to be strong,
enabling the swift repayment of the Group’s
debt and providing the Group with funds for
reinvestment. Free cash conversion is
calculated as free cash flows as a
percentage of underlying operating profit.
Cash conversion is expected to be at
comparable levels in 2018.
Total Group liabilities have increased
marginally, by £1.1m to £167.7m (2016:
£166.6m). Total borrowings (see note 20)
reduced by £8.6m, from £56.4m at the end
of 2016 to £47.8m at the end of 2017,
partially offset by an increase in JSOP
liabilities. The Group’s headroom versus
available banking facilities as at
31 December 2017 was £53.8m (31 December
2016: £41.8m) as set out below:
Banking facility headroom
Cash at bank and hand
Overdraft facility
Additional Revolving Credit Facility
Bank guarantee
2017
£’m
31.3
15.0
7.5
(0.0)
53.8
2016
£’m
19.7
15.0
7.5
(0.4)
41.8
OverviewStrategic ReportCorporate GovernanceFinancial Statements
22
Chief Financial
Officer’s statement
Continued
Dividend per share
26.7p
(2016: 25.8p)
Net debt reduction
£20.2m
Throughout the year, the Company
remained comfortably within its banking
facility. Group banking facilities are
summarised in the table below.
Negotiations to renew the banking facilities
have yet to commence but it is anticipated
that discussions will start before the end of
March 2018.
All term loan amounts are repayable
quarterly through to maturity in 2019.
Interest accrues on the term loan at between
1.4% and 2.4% plus LIBOR or Bank Base Rate,
depending upon the level of adjusted
leverage (see below). Total finance charges,
including the interest costs of the term loan
and loan notes were £2.8m for the year
(2016: £3.3m).
Net debt
We have ended the year with net debt of
£16.5m (including unamortised transaction
costs), significantly lower than the £36.7m at
the end of 2016. This was short of our aim of
being in a net cash position at the year end,
due in part to delayed receipts from
customers and the acquisitions of
Brightwork and Oak Recruitment businesses.
However, the significant improvement is
expected to continue and the Board
anticipate that, with all things being equal,
the Group will report a net cash position at
the end of 2018.
During the year ended 31 December 2017,
there was headroom against each of the
four banking covenants below at each of
the four quarter ends when covenants are
formally assessed:
1. Cash flow cover – being the ratio of
cash generated to debt servicing costs
2. Interest cover – being the ratio of
EBITDA excluding share-based
payment charges to interest costs
3. Adjusted leverage – being the ratio of
net debt to EBITDA excluding share-
based payment charges (as adjusted
for acquisitions)
4. Asset cover – being the ratio of trade
debtors to net debt
The Directors have reviewed reasonable
possible outcomes within the next financial
year, in accordance with IAS 1 paragraph
129, and have concluded that the outcomes
which were reasonably possible would not
involve either a covenant or banking facility
breach during 2018. Cash flows are
monitored daily against forecasts that are
updated each month, to ensure that the
Company continues to operate within its
banking facilities. It is expected that our free
cash flow levels will support the swift
reduction in net debt in the coming periods.
Facility
expiry date
Facility type
Term Loan (drawn in May 2015) Apr 2019
Revolving Credit Facility
(including overdraft facility)
Apr 2019
Unamortised transaction
costs
Total facility
Less cash held (see note 18)
Net debt, including unamortised
transaction costs
Net
borrowing
as at
31 December
2017
£13.1m
Net borrowing
as at
31 December
2016
£21.9m
Headline
amount
£35.0m
£57.5m
£35.0m
£35.0m
-
£92.5m
(£0.3m)
£47.8m
(£31.3m)
(£0.5m)
£56.4m
(£19.7m)
£16.5m
£36.7m
Staffline Group plc Annual Report 2017 23
With improving free cash flow levels, debt is
forecast to continue to fall in 2018, with the
Group expected to have a net cash position
by the end of 2018.
With strong financial performance for the
year ended 31 December 2017 and a strong
start to 2018, the Directors are of the view
that it is appropriate for the financial
statements to be prepared on a going
concern basis.
Changes to International Financial
Reporting Standards
2018 marks the year for implementing two
new significant International Financial
Reporting Standards (IFRS), being IFRS 15
Revenue from Contracts with Customers
and IFRS 9 Financial Instruments.
IFRS 15 Revenue from Contracts with
Customers
During 2017, a project has been undertaken
within both divisions to understand the
impact of IFRS 15 Revenue from contracts
with customers on our revenue recognition
policies. Our Recruitment division revenue
accounting policy, detailed within the
accounting policies section of this Annual
Report, is unaffected by the application
of this new standard as we currently
recognise revenue once a performance
obligation has been delivered.
Our PeoplePlus division has several
contracts, all of which have different
performance obligations. Our finance team
have reviewed the contracts and concluded
that, in most cases, our accounting policy
is unaffected by the application of this
new standard. We have a number of
similar contracts where our contractual
obligation relates to helping individuals gain
employment and stay in employment for a
specified period of time. Payments under
these contracts are staged in relation to the
number of weeks the individual is employed.
Currently revenue is recognised as and
when a stage payment is due. Under IFRS 15
this single obligation will be settled over time
and therefore all revenues will be recognised
over the period specified in the contract. This
amendment at transition in 2018 will result
in an estimated increase in our 31 December
2017 revenue by £0.5m, an increase of
£0.5m in our profit before taxation from
£24.1m to £24.6m and a reduction in the
Group’s net assets by £1.0m to £94.8m.
IFRS 9 Financial Instruments
In 2017, a review of the impact to the Group
of applying IFRS 9 Financial Instruments
was undertaken. The classification
and measurement of the Group’s trade
receivables will change due to the fact
that some of these balances are factored.
This will change the classification of these
trade receivables, estimated to be £4.8m at
31 December 2017, which will be classified
as fair value through the Income Statement.
However, based on current analysis, this
will not impact on the Income Statement
or the Statement of Financial Position. An
Expected Credit Loss (“ECL”) model has
been prepared for both divisions as at
31 December 2017 and again will not have
an impact on the Income Statement or the
Statement of Financial Position. The Group
has not hedged in 2016 or 2017, therefore the
changes to hedge accounting under IFRS 9
will not apply to the Group at transition.
IFRS 16 Leases
IFRS 16 Leases is effective for accounting
periods beginning on or after 1 January
2019. However, the Group has begun a
review of the impact the new standard
would have on its financial reporting. As
at 31 December 2017, the Group has 131
operating leases and recognised the rental
expense in the Income Statement as it falls
due. Under IFRS 16, a significant number of
these leases would lead to the recognition
of a fixed asset and a financial liability. A
small number of leases would continue to be
recognised through the Income Statement as
short-term leases i.e. leases with a maximum
lease term of no more than 12 months.
Had the standard been applicable for
the year ended 31 December 2017 the
estimated impact on the Group’s reported
profit before tax would have been less than
£0.1m, on underlying profit, being operating
profit excluding amortisation of intangible
assets arising on business combinations,
acquisition and exceptional reorganisation
cost and non-cash charge/credit for
share based payment costs, of between
£0.1m-£0.2m and on EBITDA between
£1.5m-£2.0m. Current analysis indicates
the recognised assets and liabilities would
have been in the range of £5.0m – £7.5m.
Chris Pullen
Chief Financial Officer
23 January 2018
Taxation
The tax charge on statutory profits was
£5.8m (2016: £3.9m), an effective tax rate of
24.1% (2016: 20.6%), higher than the average
actual composite UK corporation tax rate
of 19.25% due the non-tax allowability
of JSOP charges. The tax charge on
underlying profits was £7.3m (2016: £7.6m),
an effective tax rate of 20.1% (2016: 20.6%),
not significantly different to the average
actual composite UK corporation tax rate
of 19.25% (2016: 20.00%). During 2015, we
were the first Company quoted on AIM,
and the first recruitment Company, to be
awarded the Fair Tax Mark, for ensuring
that our tax disclosures are transparent and
that we are open and honest in ensuring we
pay the correct amount of tax due on our
profits. We are delighted that this status
was renewed in both 2016 and in 2017.
Dividend policy
The Group’s current dividend policy is to
maintain a dividend cover of between 4.0
and 4.5 times of underlying diluted earnings
per share (“EPS”). Underlying diluted EPS is
calculated as earnings per share adjusted
for amortisation of intangibles arising
on business combinations, share based
payment charges/credits, acquisition
related costs and reorganisation costs
including the tax effect. The Group’s
proposed final dividend will ensure the full
year dividend cover is within this range
at 4.22 times. The Group has maintained
this dividend cover for over five years and
reviews the cover annually. With our net
debt reducing, and our expectation that
by the end of 2018, all things being equal,
we will be in a net cash position, the Group
expects dividend growth in the coming years
to reduce the cover towards 2.5 to 4.0 times.
Reserves of the Company are reviewed at
least twice a year to ensure that it has
adequate distributable reserves available to
enable it to declare and pay dividends as
they fall due.
Going concern
The net debt position of the Group, as
discussed earlier, has fallen during 2017 from
£36.7m to £16.5m.
The Directors have reviewed forecasts for
the next three years and detailed forecasts
covering the period up to the end of Q1 2019.
These forecasts demonstrate that the Group
is expected to be able to operate fully within
its banking facilities for at least 12 months
from the approval of this Report, with
significant headroom being noted across all
financial covenants.
OverviewStrategic ReportCorporate GovernanceFinancial Statements 24
Principal risks
and uncertainties Managing
our risk
The Staffline Group plc Board
of Directors has completed a
robust and detailed assessment
of the Group’s risk management
processes and the Group’s
risk register.
Risk management framework
The Group is exposed to a variety of potential
risks and uncertainties which require ongoing
monitoring and management in order to
mitigate against any adverse impact on long-
term performance. The Board recognises that
effective risk management is a critical part of
achieving our strategic objectives. It employs
a variety of systems and policies to respond
effectively to these risks and uncertainties
to protect the continued strategic success
of the Group. Risk registers are maintained
within both divisions of the Group, which are
consolidated twice a year, with the output
formally reviewed by the Audit Committee.
The Board reviews
risks and uncertainties
under four principal types:
- Strategic
and market related
- Operational
and compliance
- Reputational
- Financial
Staffline Group plc Annual Report 2017 The six most significant risks to
which, in the opinion of the
Directors, the Group is exposed
are described here:
Strategic
Shortage of
staffing resource
in our Recruitment
division
Strategic
PeoplePlus
business
development
strategy
25
The Board’s view of
direction of travel of risk:
Increased since prior year
Reduced since prior year
Similar to prior year
Risk
Our response
With UK unemployment rates falling below
5% and issues around Brexit and foreign
labour, there is a risk that our Recruitment
division will not be able to obtain sufficient
resource to fulfil its contractual obligations.
In addition, there is an industry-wide
shortage of qualified drivers with, as above,
the risk that our Recruitment division will
not be able to obtain sufficient resource
to fulfil its customer requirements.
The Group monitors national and
regional labour statistics and has further
developed its overseas recruitment
function. The Group promotes new driver
apprenticeships and continues to improve
the relationship between its PeoplePlus
and Recruitment divisions, with PeoplePlus
providing labour resource to Recruitment.
The winding down of the Work Programme
(“WP”) will reduce the potential revenue
accessible to the PeoplePlus division.
The division is looking to its Skills and
Communities/Justice revenue streams
for future growth, to minimise the
financial effects of the winding down
of the WP. In particular, the growth in
Apprenticeship Levy revenue is considered
a key part of the division’s future plans.
There is a risk that the existing business
development strategy within the division is
not structured and aligned appropriately
to the planned future sales mix. This
could lead to poor financial bidding,
resulting in a failure to meet the growth
targets and objectives of the division.
The PeoplePlus division’s business
development strategy is now
structured to achieve a better-
balanced range of contracts, including
Apprenticeship Levy, Adult Education
Budget and Prison Education.
A new Business Development Director
commenced in their role shortly before
the end of 2017, with a new Divisional
Managing Director appointed in November
2017. The business development strategy
will be thoroughly reviewed to ensure it is
appropriately aligned with the planned
future activity mix. The division already
has a strong pipeline of a number of
contracts with smaller values, which
should provide a better balanced range
of contracts whilst covering the shortfall
from the winding down of the WP.
Work Programme revenue as a %
of PeoplePlus revenues
49% (2016: 52%)
OverviewStrategic ReportCorporate GovernanceFinancial Statements 26
Principal risks
and uncertainties
Continued
Operational
Business
Interruption –
information
security breach
or cyber-attack
Operational
Pressure on
margins by
customers
Risk
Our response
There are two issues the Group focuses on
with regard to this risk:
1. Major IT failure – As with all large scale
businesses, including those in the market
sectors in which we operate, we are
reliant on our IT systems to support and
operate our business.
2. Business Interruption – Breach of
security – The Group holds sensitive
personal information in respect of
temporary workers, participants of our
various PeoplePlus contracts, and our
own staff. There is increased evidence
of cyber-crime.
Breaches or attacks could lead to potential
reputational damage with a potential
resultant loss of revenue, financial penalties
for the Group and diversion of management
time. The new General Data Protection
Regulation (“GDPR”) has further focussed
the Group’s attention on this risk.
The Group has an appropriate Disaster
Recovery plan in place in the event of a
major internal failure of our IT systems.
The Group’s IT systems in the two
divisions are segregated, enabling
divisional Business Continuity Plans
which include the utilisation of the
other division’s physical locations. A
back-up replica system has been put
in place, maintained by a third party
company, and back-up connections
are also in place in both divisions.
During 2017, the Group has migrated
the hosting of materially all of its
systems to a third party specialist IT
company. The Group has insurance in
place for business interruption and has
in place suitable Group policies and
procedures. ISO27001 is maintained
within our Group under the stewardship
of a Data Protection Officer. The
Group has contracted a third party to
carry out security penetration testing
on our systems and set up a project
team to review the outcomes. Further
measures are being reviewed to
enhance the degree of staff awareness
and training of this risk across the
Group. A GDPR steering committee
has been set up to review the impact of
the new regulation, with a programme
of data security improvements
due to be rolled out in Q1 2018.
Recent trends have seen Recruitment
revenues increase but with lower increases
in gross profit. On some contracts, margins
per hour have been declining in both
absolute terms and in comparison to last
year, in part due to the increasing cost of
resourcing labour. We understand that this
is a trend across the Recruitment sector.
Recruitment uses a pricing model to
ensure no offer is quoted or accepted
which would put unacceptable pressure
on margins. Margins are reported
across the division on a weekly basis.
New business wins improve efficiency
(overheads spread over larger base)
and reduce the impact of one customer
demanding lower margins. Finally,
the division will continue to provide an
excellent service and seek to achieve
a high new customer win rate.
Staffline Group plc Annual Report 2017 27
The Board’s view of
direction of travel of risk:
Increased since prior year
Reduced since prior year
Similar to prior year
Operational
Recruitment
mobilisation project
teams become
overstretched
Risk
Our response
The Recruitment division’s continued OnSite
growth can lead to significant pressure on
the mobilisation project teams during periods
of significant growth. There is a risk that this
leads to poorly implemented new wins.
The Group continues to monitor the
effectiveness of the mobilisation project
teams and the performance of new
OnSites once the team have handed
over to operations. Operations continue
to consider seconding experienced staff
to new OnSites to help bed them in.
Reputational
Loss of
Gangmasters
Labour Abuse
Authority (“GLAA”)
license
The Group is licensed with the GLAA
and works closely with the Authority to
maintain high standards of compliance
controls. However, the Group faces the
risk that a member of staff deliberately
bypasses controls or that an employee
is involved in gangmaster activity.
Number of Recruitment OnSites
(year-end)
395 (2016: 357)
The Group has a strong compliance team
which operates a robust system of checks
on every contractor. The team carry out
regular site audits and works closely
with the GLAA and/or police if issues are
identified. The Group has good training
processes in place for all new starters
and supervisors to ensure everybody
in the Recruitment division is aware of
indicators of inappropriate activities.
New starter ID checks
150,400
(2016: 144,100)
OverviewStrategic ReportCorporate GovernanceFinancial Statements 28
Corporate social
responsibility Building a
sustainable
future
At Staffline, we place great
importance on the role we
play in helping support
local communities and the
environment surrounding us.
We understand the importance of
integrating our business values and
operations to meet the expectations
of our stakeholders. These include
clients, employees, flexible workers,
regulators, investors and suppliers.
We recognise that our social, economic
and environmental responsibilities to
our stakeholders are integral to our
business. We aim to demonstrate these
responsibilities through our actions
and within our corporate policies.
The Group has implemented a robust
environmental and sustainability monitoring
system, which is supported by a clear
strategy and development plan.
In addition, our Energy Saving
Opportunity Scheme (“ESOS”) audit
results are continually being reviewed
and the opportunities to reduce our
environmental impact are being acted
upon. This will continue to focus on
our energy consumption, waste, travel
and use of sustainable materials. We
carry out building and energy audits
on an ongoing basis, to identify areas
for improvement and opportunities
to reduce our carbon footprint.
In conjunction with our General Data
Protection Regulation compliance work,
we are striving to move towards paper-
less offices and have put measures
in place to significantly reduce both
printing and postage usage and costs.
We continue to work closely with our
suppliers and customers to improve the
efficiency of distribution process and
thus reduce their carbon footprint.
On behalf of the Board
Chris Pullen
Chief Financial Officer
23 January 2018
Staffline Group plc Annual Report 2017 Our
focus
“Our clients and workers depend
on us for strong compliance and
ethical standards”.
29
We shall strive to improve
our environmental
performance by fostering
and encouraging initiatives
that reduce waste
We will offer our employees
clear and fair terms of
employment and provide
resources to enable their
continual development
We shall uphold the values
of honesty, integrity and
fairness on our
relationships with
stakeholders
We shall provide, and
strive to maintain, a
clean, healthy and safe
working environment
We will ensure that flexible workers engaged by the
Company are not subject to exploitation and are provided
with work opportunities in a healthy and safe working
environment fully compliant with UK legislation
We shall support and
encourage our employees
to help local community
organisations and
activities
We shall provide safeguards
to ensure that all employees
are treated with respect and
without sexual, racial,
physical or mental
harassment
We shall operate an equal
opportunities policy for
all present and potential
future employees and
flexible workers
OverviewStrategic ReportCorporate GovernanceFinancial Statements 30
Board
of Directors Our
leadership
team
John Crabtree
Non-Executive Chairman (r,n)
Andy Hogarth
Chief Executive Officer (n)
Chris Pullen
Group Chief Financial Officer (n)
Diane Martyn
Ed Barker
Tracy Lewis
Group Managing Director
Non-Executive Director (a, r, n)
Non-Executive Director (a,r, n)
Appointed to the Board in
March 2005 as a Non-Executive
Director and was appointed
Chairman in 2011. A member
of the Remuneration and
Nomination Committees.
Appointed to the Board in
November 2004 as Finance
Director, becoming Managing
Director in 2005 and was
appointed Group Chief
Executive in 2009. A member
of the Nomination Committee.
John was the senior partner of Wragge
& Co, the Birmingham-based corporate
law firm, and whilst in this role John was
responsible for the firm’s evolution into a
leading national and international practice.
John has a number of business interests,
including being Non-Executive Chairman
of Real Estate Investors plc, SLR Holdings
Limited and the charity Sense. John was
appointed as Her Majesty’s Lord-Lieutenant
for the West Midlands in January 2017.
Andy has held senior roles in a wide range
of businesses, including retail, support
services, healthcare, hospitality and
construction. As Finance Director, he led
the MBO and subsequent trade sale in
2002 of Pipeline Constructors Group,
a £100m utility services business. He
currently sits on the board of an elderly
care charity, is a Governor of two RSA
academy schools and is the Non-Executive
Chairman of the Birmingham Hippodrome,
the UK’s largest theatre. He is also a
Director of Hogarths Hotels, two boutique
hotels in Solihull and Kidderminster.
He is a Fellow of the Association of
Chartered Certified Accountants
(FCCA), as well as a Master Practitioner
of Neuro-Linguistic Programming
(NLP) and a certified NLP coach.
Chris joined Staffline in
September 2015 and was
initially responsible for Group
Mergers and Acquisitions. He
was appointed Group Chief
Financial Officer and an
Executive member of the Board
in June 2016. A member of the
Nomination Committee.
Chris joined the Group from Regus PLC,
the FTSE 250 listed provider of flexible
working solutions, where he was Global
Managing Director of its core Office
division. He has previously held the role
of CEO of APCOA Parking (UK) Ltd,
which provides parking services across
the UK, where he led a turnaround and
subsequent significant growth, as well
as senior management positions at ITC
Legal Services Ltd and National Car
Parks Limited. Chris was formerly
an officer in the Coldstream Guards
and holds an MBA from the University
of Durham Business School.
As set out in the Chairman’s Report on page 7, the
following changes are to be made with effect from
24 January 2018: Andy Hogarth to be replaced by Chris
Pullen as Chief Executive Officer, Andy Hogarth to
remain on the Board as a Non-Executive Director, Diane
Martyn to step down from the Board and Michael Watts
to be appointed as Chief Financial Officer.
Appointed to the board in
Appointed to the board in
February 2012 as a Non-Executive
November 2014. Chairman
Director and was appointed
Group Managing Director in
February 2013.
of the Audit Committee and
member of the Remuneration
and Nomination Committees.
Appointed to the board in
August 2016. Chair of the
Nomination and Remuneration
Committees and a member of
the Audit Committee.
Diane was, until 2011, CEO of Randstad
Ed has over 13 years of experience in the
Tracy has over 30 years’ experience within
Staffing in the UK, part of one of the
leading human resources services
retail sector working across a number
the retail and manufacturing sectors
of senior financial and operational
having held a number of senior positions.
providers in the world, where she was
functions, including Group Reporting,
She has considerable experience in
responsible for the merger of Select
Financial Planning & Analysis, Tax,
leadership roles as well as sales, marketing,
Appointments plc and Randstad in 2008.
Pensions, Group Financial Controller
product and business development
She has over 20 years of experience in
and Retail & Logistics Finance. Prior to
functions. Tracy is currently Executive
the staffing industry, where she has held
working in industry, he achieved his
Chairman of tech marketing company
senior management roles, including Chief
professional ACA qualification with PwC
ITG Topco Limited. She was CEO of
Executive Officer of Select Appointments
in 1998, and was made an FCA in 2013.
Wacoal Europe (formerly Eveden Group),
plc and Managing Director of Blue Arrow.
a leading designer, manufacturer and
global distributor of premium lingerie and
swimwear brands and oversaw its sale to
Japanese headquartered Wacoal Holdings
Corp. in 2012. Her previous executive
roles included management positions at
Marks & Spencer Plc, Mothercare Plc and
Next Plc. Tracy was also a Non-Executive
Director of Original Additions (Beauty) Ltd.
Staffline Group plc Annual Report 2017 31
The Board
The Board currently comprises the
Non-Executive Chairman, the Group
Chief Executive, the Group Managing
Director, the Chief Financial Officer and
two Non-Executive Directors. Biographies
of the Directors appear below, including
who sits on which committees
(a) = Audit Committee,
(r) = Remuneration Committee
(n) = Nominations Committee
The Non-Executive Directors are considered
by the Board to be independent.
John Crabtree
Andy Hogarth
Chris Pullen
Non-Executive Chairman (r,n)
Chief Executive Officer (n)
Group Chief Financial Officer (n)
Diane Martyn
Group Managing Director
Ed Barker
Non-Executive Director (a, r, n)
Tracy Lewis
Non-Executive Director (a,r, n)
Appointed to the Board in
March 2005 as a Non-Executive
Director and was appointed
Chairman in 2011. A member
of the Remuneration and
Nomination Committees.
Appointed to the Board in
November 2004 as Finance
Director, becoming Managing
Director in 2005 and was
appointed Group Chief
Executive in 2009. A member
of the Nomination Committee.
Chris joined Staffline in
September 2015 and was
initially responsible for Group
Mergers and Acquisitions. He
was appointed Group Chief
Financial Officer and an
Executive member of the Board
in June 2016. A member of the
Nomination Committee.
Appointed to the board in
February 2012 as a Non-Executive
Director and was appointed
Group Managing Director in
February 2013.
Appointed to the board in
November 2014. Chairman
of the Audit Committee and
member of the Remuneration
and Nomination Committees.
Appointed to the board in
August 2016. Chair of the
Nomination and Remuneration
Committees and a member of
the Audit Committee.
John was the senior partner of Wragge
Andy has held senior roles in a wide range
Chris joined the Group from Regus PLC,
& Co, the Birmingham-based corporate
of businesses, including retail, support
the FTSE 250 listed provider of flexible
law firm, and whilst in this role John was
services, healthcare, hospitality and
working solutions, where he was Global
responsible for the firm’s evolution into a
construction. As Finance Director, he led
Managing Director of its core Office
leading national and international practice.
the MBO and subsequent trade sale in
division. He has previously held the role
John has a number of business interests,
2002 of Pipeline Constructors Group,
of CEO of APCOA Parking (UK) Ltd,
including being Non-Executive Chairman
a £100m utility services business. He
which provides parking services across
of Real Estate Investors plc, SLR Holdings
currently sits on the board of an elderly
the UK, where he led a turnaround and
Limited and the charity Sense. John was
care charity, is a Governor of two RSA
subsequent significant growth, as well
appointed as Her Majesty’s Lord-Lieutenant
academy schools and is the Non-Executive
as senior management positions at ITC
for the West Midlands in January 2017.
Chairman of the Birmingham Hippodrome,
Legal Services Ltd and National Car
Diane was, until 2011, CEO of Randstad
Staffing in the UK, part of one of the
leading human resources services
providers in the world, where she was
responsible for the merger of Select
Appointments plc and Randstad in 2008.
She has over 20 years of experience in
the staffing industry, where she has held
senior management roles, including Chief
Executive Officer of Select Appointments
plc and Managing Director of Blue Arrow.
Ed has over 13 years of experience in the
retail sector working across a number
of senior financial and operational
functions, including Group Reporting,
Financial Planning & Analysis, Tax,
Pensions, Group Financial Controller
and Retail & Logistics Finance. Prior to
working in industry, he achieved his
professional ACA qualification with PwC
in 1998, and was made an FCA in 2013.
the UK’s largest theatre. He is also a
Parks Limited. Chris was formerly
Director of Hogarths Hotels, two boutique
an officer in the Coldstream Guards
and holds an MBA from the University
of Durham Business School.
hotels in Solihull and Kidderminster.
He is a Fellow of the Association of
Chartered Certified Accountants
(FCCA), as well as a Master Practitioner
of Neuro-Linguistic Programming
(NLP) and a certified NLP coach.
As set out in the Chairman’s Report on page 7, the
following changes are to be made with effect from
24 January 2018: Andy Hogarth to be replaced by Chris
Pullen as Chief Executive Officer, Andy Hogarth to
remain on the Board as a Non-Executive Director, Diane
Martyn to step down from the Board and Michael Watts
to be appointed as Chief Financial Officer.
Tracy has over 30 years’ experience within
the retail and manufacturing sectors
having held a number of senior positions.
She has considerable experience in
leadership roles as well as sales, marketing,
product and business development
functions. Tracy is currently Executive
Chairman of tech marketing company
ITG Topco Limited. She was CEO of
Wacoal Europe (formerly Eveden Group),
a leading designer, manufacturer and
global distributor of premium lingerie and
swimwear brands and oversaw its sale to
Japanese headquartered Wacoal Holdings
Corp. in 2012. Her previous executive
roles included management positions at
Marks & Spencer Plc, Mothercare Plc and
Next Plc. Tracy was also a Non-Executive
Director of Original Additions (Beauty) Ltd.
OverviewStrategic ReportCorporate GovernanceFinancial Statements 32
Corporate
governance
The Board and
Committees for
the year ended
31 December 2017
Statement by the Directors on
compliance with certain of the provisions
of the UK Corporate Governance Code
(the Code)
As a Company listed on the Alternative
Investment Market of the London Stock
Exchange, Staffline Group plc is not required
to, and has not, complied with the full
requirements of the UK Corporate
Governance Code (the Code). However, we
have reported on certain of our Corporate
Governance arrangements by drawing upon
best practice available. The number of
Non-Executive Directors equals the number
of Executive Directors. The Group supports
the concept of an effective Board leading
and controlling the Group, and a brief
outline of the role of the Board and its
Committees, together with the Group’s
systems of internal financial control, which
the Board will continue to keep under review,
is given below.
Board meetings
The Board met 11 times during 2017.
The members of the Board are as follows:
Member
for full period
Number of
meetings held
Number of
meetings attended
**
**
From a financial point of view, authority
levels are in place and there is regular
review of financial information at all
management levels right up to the Board.
The Group tailors its approach to ensuring
internal controls are operating effectively
over new acquisitions – in the majority of
cases the acquired business is integrated
into Staffline systems from the outset.
Operational responsibility is assigned
from day one and the results form
part of the usual regular management
reporting. In special circumstances, such
as when they are large scale, acquisitions
continue to be run on separate systems.
Committee structures
As part of the Group’s internal controls,
supporting the Board of Directors, the
group have three principal Committees
in place, described below.
John Crabtree (chair)*
Andy Hogarth
Diane Martyn
Chris Pullen
Ed Barker*
Tracy Lewis*
Yes
Yes
Yes
Yes
Yes
Yes
* Non-Executive Directors.
** John Crabtree missed one meeting due to illness,
Ed Barker missed one meeting due to other commitments.
Relations with shareholders
The Company values the views of its
shareholders and recognises their interest
in the Group’s strategy and performance.
The Annual General Meeting is used to
communicate with all investors and they are
encouraged to participate. The Directors
are available to answer questions. Separate
resolutions are proposed on each issue so
that they can be given proper consideration
and there is a formal resolution to approve
the Annual Report and Accounts.
Internal control
The Board is responsible for maintaining
a strong system of internal control to
safeguard shareholders’ interests and
the Group’s assets and for reviewing
its effectiveness. The system of internal
financial control is designed to provide
reasonable, but not absolute, assurance
against material misstatement or loss.
The Group has several mechanisms
for ensuring internal controls are operating
effectively. There is an independent
compliance audit team responsible for
checking legality to work and compliance
with industry body standards (e.g. GLAA
and REC). Within the payroll team we
maintain appropriate levels of ongoing
training to ensure compliance with
relevant legislation and procedures.
Staffline Group plc Annual Report 2017
33
Member
for full
period
Number of
meetings held
Number of
meetings attended
Ed Barker
Yes
Tracy Lewis
Yes
The Committee met four times
during 2017, with the following key
agenda items:
In addition, the Committee met
in January 2018 to review the
2017 Annual Report and results:
January Key agenda items
January Key agenda items
Auditor’s presentation of year-end
findings, review of Letter of
Representation, review of preliminary
2016 results announcement. Review
of appropriateness of applying
Going Concern basis of preparation
to the results.
Auditor’s presentation of year-end
findings, review of Letter of
Representation, review of preliminary
2017 results announcement. Review
of appropriateness of applying
Going Concern basis of preparation
to the results.
April Key agenda items
Review of register of Risks
and Uncertainties, agree interim
reporting timetable, review
auditor’s performance.
July Key agenda items
Interim reporting accounting
judgements and decisions,
involvement of auditors in
interim reporting.
October Key agenda items
Review of register of Risks and
Uncertainties, Auditor’s presentation
of 2017 audit strategy plan, proposed
audit fees, year-end timetable. Review
of the carrying value of Goodwill
and Intangible assets. Review of
recognition of exceptional costs in
the 2017 results.
Audit and Risk Committee
The Audit and Risk Committee, chaired
by Ed Barker, has met four times during
the year.
The Audit and Risk Committee
has responsibility for:
1. The Company’s financial reporting.
2. Narrative reporting ensuring that the
financial performance of the Group is
properly monitored and reported on.
3. Whistleblowing arrangements.
4. Internal financial controls –
identifying and commissioning
specific internal control reviews.
5. Appointment of external auditors.
6. The external audit process – meeting
the external auditors and reviewing
any reports from them regarding
accounts and internal control
systems.
7. The approval of external disclosures.
It also oversees:
1. The Group’s Risk Register, risk
appetite and tolerance.
2. Developments in relevant legislation
and regulation.
3. The Group’s system of internal
controls and risk management.
The Group’s Risk Register details all
significant risks faced by the Group,
rating these risks on a scale of 1 to 5 for
both probability and impact. These risks
have been mitigated to the extent
considered practical and are reviewed
regularly. The principal risks and
uncertainties facing the Group are
included in the Strategic Report on
page 24.
The Committee, having taken account of
PwC’s confirmation, is satisfied that PwC
is independent of the Group and its
subsidiaries.
OverviewStrategic ReportCorporate GovernanceFinancial Statements 34
Corporate
governance
The Board and
Committees for
the year ended
31 December 2017
Remuneration Committee
The Remuneration Committee ensures
that remuneration arrangements
support the strategic aims of the
business and enable the recruitment,
motivation and retention of senior
executives in a manner that is aligned
to shareholder interests, while also
complying with the requirements of
regulation. In addition to reviewing
and agreeing Directors’ remuneration,
the Committee also approves
remuneration changes for all
employees where basic gross salary
is £100,000 or above.
The members of the Committee
are all Non-Executive Directors.
Except as shareholders and Directors,
none of the members has any personal
financial interest in the Group:
Member
for full
period
Number of
meetings held
Number of
meetings attended
Tracy Lewis
(chair)
Ed Barker
Yes
Yes
John Crabtree Yes
* John Crabtree missed one meeting due to illness.
The Committee, chaired by Tracy
Lewis, met four times during 2017, with
the following key agenda items:
January Key agenda items
Approval of Executive Directors 2016
bonuses, approval of basic salary
increases for two senior executives,
approval of Executive Directors’ 2017
bonus scheme.
May Key agenda items
Approval of basic salary increase for
one senior executive, approval to offer
agreed package to a prospective
senior executive.
October Key agenda items
Approval of five year Joint Share
Ownership Plan commencing in 2018.
December Key agenda items
Approval of executive directors’ 2018
bonus scheme, approval of remuneration
changes for Executive Directors.
Nominations Committee
The Nominations Committee reviews
the structure and composition of
the Board and its Committees, in
particular the skills, knowledge and
experience of Directors. Specifically,
succession planning and the
approval of Board appointments
form an important part of the
Committee’s responsibilities.
The members of the
Committee are as follows:
Member
for full
period
Number of
meetings held
Number of
meetings attended
Tracy Lewis
(chair)
Yes
Andy Hogarth Yes
Chris Pullen
Yes
Ed Barker
Yes
John Crabtree Yes
In addition, the Committee met in
January 2018 to review the following
key agenda items:
The Committee, chaired by Tracy
Lewis, met once in 2017 with the
following key agenda items:
January Key agenda items
December Key agenda items
Approval of Executive Directors’ and
eight senior executives 2017 bonuses,
approval of basic salary increases for
eight senior executives, approval of
the 2018 bonus schemes for seven
senior executives.
The Group’s current remuneration
policies are set out in the Report on
Remuneration on pages 35 to 37.
Approval of proposed management
changes to take effect in 2018.
Approval of communications to
be issued in connection with
these changes.
Staffline Group plc Annual Report 2017 35
Corporate
governance
Report on remuneration
for the year ended
31 December 2017
Remuneration Committee
The Remuneration Committee is described in detail on page 34.
Policy on Executive Directors’ remuneration
The Executive Directors’ remuneration packages are designed to
attract, motivate and retain Directors of the high calibre needed
to help the Group successfully compete in its marketplace. The
Group’s policies are to pay Executive Directors a salary at market
levels for comparable jobs in the sector whilst recognising the
relative size of the Group.
The performance management of the Executive Directors and key
members of senior management and the determination of their
annual remuneration package is undertaken by the Remuneration
Committee. No Director plays a part in any decision about his or
her own remuneration. Executive Directors are permitted to accept
appointments outside the Group subject to prior Board approval.
The remuneration packages for Andy Hogarth, Chris Pullen and
Diane Martyn are comprised of a basic salary and a performance-
related bonus as well as share-based payment schemes as
described below.
The remuneration of the Directors, which was all paid by the Group,
is detailed on pages 35 to 37 below.
Basic salary
Salaries for the Executive Directors are reviewed by the
Remuneration Committee at specific times or when an individual
changes position or responsibility. In deciding appropriate levels, the
Committee takes into account objective research on comparable
companies, general market conditions and performance. Since
January 2013 the Committee had held salary levels flat, but given
the significant business growth and additional responsibilities taken
by the executive team, the following increases were approved with
effect from 1st January 2017:
Director
A Hogarth
D Martyn
C Pullen
Previous
Salary
£000 p.a.
Increase
£000 p.a.
Current
salary
£000 p.a.
220
200
200
75
75
75
295
275
275
Annual bonus
Annual bonuses are awarded at the discretion of the Remuneration
Committee as an incentive and to reward performance during the
financial year pursuant to specific performance criteria. In exercising
its discretion, the Committee takes into account the underlying profit
before taxation performance against budget. The Committee
believes that incentive compensation should recognise the growth
and profitability of the business, which are tied to the interests
of shareholders.
A total bonus of £422,500 (2016: £135,000) has been accrued
in respect of the Executive Directors in recognition of Group
profitability meeting budget, in line with the Executive Bonus
Scheme approved by the Remuneration Committee. The bonus
for Executive Directors is based on achieving targeted Group
underlying profit for the year before taxation of £36.0m. For the
full year, achievement of 100% of target will result in 50% of basic
salary being paid, payments being made on a graduated basis from
achievement of 90% of target (below which no bonus is payable) up
to 110% at which 100% of basic salary will be paid as a bonus (each
additional 5% of bonus therefore required an additional £0.36m of
profit). The actual figure was £36.3m. Thus 50% of the target was
achieved, resulting in bonuses of 50.0% (2016: 24.1%) of base salary
being payable to Andy Hogarth, Diane Martyn and Chris Pullen.
Directors’ share options – over the Company’s ordinary 10p
shares (audited)
During March 2013, a maximum of 100,000 performance-
related share options were issued to a Director, Diane Martyn.
The options vested in March 2016 on a sliding scale dependent
upon the performance of adjusted diluted earnings per share in
the best of the three years ended 31 December 2015. The range
was from 35 pence up to 45 pence. The maximum criteria had
been met and accordingly the full amount of shares vested. On
27 January 2017, the Company issued 100,000 new ordinary
shares of 10p each in the capital of the Company following an
exercise of share options by Diane Martyn at a price of 348.6
pence per ordinary share. On 27 January 2017, Diane Martyn
sold 100,000 ordinary shares of 10p each in the capital of the
Company at an average price of 1,032.5 pence per ordinary share.
During June 2016, a maximum of 100,000 performance-related
share options were issued to a Director, Chris Pullen. The options
vest in June 2019 dependent upon the performance of adjusted
diluted earnings per share for the year ended 31 December 2018.
Diluted underlying earnings per share must be equal to, or greater
than, 115.5p for the shares to vest. As at 31 December 2017, the
relevant earnings per share measure was 112.6p.
In October 2017, Staffline granted options to employees as part
of its Save As You Earn (“SAYE”) share scheme for 2017. Eligible
employees were invited to subscribe for options over Staffline’s
ordinary shares of 10p each (“Ordinary Shares”) with an exercise
price of £9.32, a 20% discount to the closing middle market price
on the trading day before the invitation to participate was made.
The options have a contract start date of 1 December 2017 and
are exercisable between 1 December 2020 and 31 May 2021. Two
directors, Andy Hogarth and Chris Pullen, are participants in the
Company’s SAYE scheme. Their individual option grant pursuant to
this year’s SAYE scheme is 1,931 shares and 1,931 shares respectively.
Directors’ performance-related (exc SAYE) share options – over the Company’s ordinary 10p shares (audited)
D Martyn
C Pullen
Total
Date of grant
8 March 2013
20 June 2016
Remaining
contractual life
(mths)
–
18
Exercise
price
348.6p
991.5p
At
1 Jan 2017
Number
100,000
100,000
200,000
Granted
Number
–
–
–
Exercised
Number
(100,000)
–
At
31 Dec 2017
Number
–
100,000
(100,000)
100,000
OverviewStrategic ReportCorporate GovernanceFinancial Statements 36
Corporate
governance continued
Report on remuneration
for the year ended
31 December 2017
Joint Share Ownership Plan 2013
In June 2013, the Company established a Joint Share Ownership
Plan (“JSOP”) to provide additional incentives to certain senior
executives. The JSOP shares are held jointly between the Director
and the Staffline Group plc Employee Benefit Trust. Under the
terms of the JSOP, rules the Directors are eligible to receive
the excess of any disposal proceeds received for the JSOP
shares over the participation price. The JSOP shares do not
carry dividend or voting rights whilst they are jointly held by the
director and the Staffline Group plc Employee Benefit Trust.
That JSOP runs from the date of the award until 30 June 2018,
based on trading and share price performances for the five years
ended 31 December 2017. During this period the right to sell the
JSOP award shares is not at the discretion of the executives but
instead at the discretion of the Employee Benefit Trust. On disposal
of the shares, the amount received by the executives is calculated
based on certain business performance conditions, as follows:
1. A range of underlying diluted Earnings Per Share (“EPS”) of
between 56.0p and 93.5p required in any of financial years 2014
to 2017 inclusive (maximum 50% of the award). The EPS criteria
was met in the year ended 31 December 2016 (114.0p reported).
2. 50% of the award is subject to an additional condition that total
shareholder return exceeds the increase in the FTSE AIM All Share
Total Return Index over the period (nil award if minimum EPS
requirement above not achieved). For the 4.5 years ended
31 December 2017, the Company’s share price has risen by 153%,
from 411p at 1 July 2013 to 1,040p as at 31 December 2017, in
excess of the 52% increase over the same period by the FTSE AIM
All Share Total Return Index (1 July 2013 692, 31 December 2017
1,050).
It is therefore anticipated that the maximum number of shares will be
allocated to the relevant Directors and senior executives.
The Directors and senior executives participating in the JSOP
acquired an interest in the shares jointly with the Staffline Group plc
Employee Benefit Trust. The Directors’ interests, which have been
audited, are detailed below (including those of Directors who have
resigned but retain an interest in the Plan):
A Hogarth
D Martyn
P Ledgard
Award date
4 Jul 2013
4 Jul 2013
2 Dec 2013
Participation
price
31 December 2017
Interest over
number of shares
411.5p
411.5p
563.0p
350,000
350,000
50,000
Date on which
exercisable
30/06/2018
30/06/2018
30/06/2018
The amounts receivable by the individuals is payable in two equal
tranches, in June 2018 and in June 2019.
Joint Share Ownership Plan 2018
A Plan covering the five-year period ended 31 December 2022 has
been approved by the Remuneration Committee. The amount
receivable by the individuals is calculated based on certain business
performance conditions, as follows:
1. A range of underlying diluted Earnings Per Share (“EPS”) of
between 180.0p and 200.0p required in the financial year 2022
(maximum 50% of the award).
2. 50% of the award is subject to an additional condition that total
shareholder return exceeds the increase in the FTSE AIM All Share
Total Return Index over the period (nil award if minimum EPS
requirement above not achieved).
Chris Pullen (maximum of 275,000 shares) has interests in the
2018 Plan.
Policy on Non-Executive Directors’ remuneration
The remuneration of the Non-Executive Directors is determined by
the Board and based upon independent surveys of fees paid to
Non-Executive Directors of similar companies. The Non-Executive
Directors do not receive any benefits apart from their basic salaries
or fees.
Director
J Crabtree
E Barker
T Lewis
Previous
fee or salary
£000 p.a.
Increase
£000 p.a.
Current fee
or salary
£000 p.a.
63
30
30
17
–
–
80
30
30
Service contracts
Andy Hogarth, Chris Pullen and Diane Martyn have rolling
service contracts requiring notice from either party of one
year. John Crabtree, Ed Barker and Tracy Lewis each have
contracts terminable on six months’ notice given by either
party. There are no contractual termination payments
other than as a result of the contractual notice period.
Pension arrangements
The Group has a defined contribution pension scheme with
Scottish Widows for all permanent employees. Executive Directors
are entitled to receive a contribution from the Group equivalent
to 10% of their basic salary into this or another scheme of their
choice. A cash allowance of 10% of basic salary is paid in lieu of
Company pension contribution at the request of the Director.
The Group operates a defined benefit pension scheme,
however no Directors are members of the scheme.
Other benefits and benefits in kind
The Group provides private medical insurance and car
allowances for Andy Hogarth, Chris Pullen and Diane Martyn.
No other benefits in kind are provided to current Directors.
Staffline Group plc Annual Report 2017 37
Directors’ remuneration summary (audited)
The table below sets out the remuneration received by the Directors
in respect of the year ended 31 December 2017 and for the year
ended 31 December 2016:
£000
Salary,
fees
Annual
bonus
Car
allowance
Year
Pension Others
Total
Executive Directors
A Hogarth
2017
2016
D Martyn
C Pullen *
P Ledgard ***
2017
2016
2017
2016
2016
Chairman (Non-Exec)
2017
J Crabtree
2016
Non-Executive Directors
E Barker
2017
2016
T Lewis **
2017
2016
C Braddock **** 2016
295
220
275
200
275
141
58
80
63
30
30
30
10
20
148
53
137
48
137
34
–
–
–
–
–
–
–
–
2017
2016
985
742
422
135
12
12
12
12
12
8
5
–
–
–
–
–
–
–
36
37
29
22
28
17
28
14
6
–
–
–
–
–
–
–
2
2
1
1
2
1
19
–
–
–
–
–
–
–
486
309
453
278
454
198
88
80
63
30
30
30
10
20
85
59
5 1,533
23
996
* C Pullen was appointed to the board on 18 April 2016
** T Lewis was appointed to the board on 19 August 2016
*** P Ledgard resigned from the board on 31 May 2016
**** C Braddock resigned from the board on 19 May 2016
Others represents medical insurance for A Hogarth, D Martyn and
C Pullen and, additionally in 2016, compensation for loss of office for
P Ledgard. Pensions include both Company contributions and cash
allowances where the Directors have elected not to have contributions
paid into a pension fund.
In addition, the Group received an income statement charge of
£2,052,000 (2016: credit of £832,000) in relation to cash and
equity settled share options held by the Directors. The total is split
as follows:
£000
A Hogarth
D Martyn
P Ledgard
2017
charge
969
969
114
2,052
2016
(credit)
(232)
(232)
(368)
(832)
The above charges and credits were principally driven by
movements in the Company’s share price as follows:
Opening share price (pence)
Closing share price (pence)
% increase (decrease) during the year
2017
2016
845
1,040
23%
1,464
845
(42%)
OverviewStrategic ReportCorporate GovernanceFinancial Statements 38
Report of the
Directors
For the year ended
31 December 2017
The Directors present their annual report for the Group and the
Company together with the audited financial statements for the
year ended 31 December 2017.
A detailed review of the activities of the Group, including financial
and non-financial key performance indicators, can be found in the
Strategic Report, along with details of the Group’s future
developments. Financial Risk Management is detailed in note 28 of
the financial statements.
An interim dividend of £2,819,000 (11.0 pence per share) was paid
during the year (2016: £2,663,000, 10.5 pence per share). The
Directors have proposed a final dividend of £4,025,000 (15.7 pence
per share) (2016: £3,906,000, 15.3 pence per share) to be paid on
3 July 2018, to shareholders registered on 1 June 2018. This has not
been included within creditors as it was not formally approved
before the financial year end.
Directors
The Directors who held office during the year and up to the date of
approval of the Annual Report were:
E Barker
J Crabtree OBE (Chairman)
A Hogarth
T Lewis
D Martyn
C Pullen
Qualifying third party indemnity provisions
A qualifying third party indemnity provision, as defined in Section
232(2) of the Companies Act 2006, is in force at the date of approval
of the financial statements for the benefit of each of the Directors in
respect of liabilities incurred as a result of their office, to the extent
permitted by law. In respect of those liabilities for which Directors
may not be indemnified, the Company maintained a Directors’ and
officers’ liability insurance policy throughout the financial year.
Employee involvement
The Directors recognise the value of involving employees in the
business and ensure that matters of concern to them, including the
Group’s strategic objectives, vision, values and principles are
communicated in an open and regular manner. Employees are kept
aware of progress versus these objectives and key developments
within the Group by regular briefings, and these include
communications published on the Group’s intranet and
presentations by Group and subsidiary management at
conferences, roadshows and at routine office and site briefings.
Senior staff participate in various bonus scheme arrangements
linked to financial performance.
Disabled persons
It is the Group's policy to give full and fair consideration to suitable
applications for employment from disabled persons. Once
employed, disabled persons receive equal opportunities for training,
career development and promotion. Opportunities exist for
employees of the Group who become disabled to continue their
employment or to be trained for other positions within the Group.
Substantial shareholdings
The Company’s issued share capital consists of 27,849,389 ordinary
shares with a nominal value of 10 pence each (“Ordinary Shares”),
each share having equal voting rights.
The interests in excess of 3.0% of the issued ordinary share capital of
the Company, which have been notified as at 31 December 2017, were
as follows, representing 66.2% of the total issued ordinary share capital:
Ordinary
shares of
10p each
Percentage
of ordinary
shares
%
Octopus Investments
Cat Rock Capital Management
Employee Benefit Trust
Aberdeen Standard Investments (Standard Life)
Directors of the Company (see below)
River and Mercantile Asset Management
Legal and General Investment
Invesco Perpetual
Living Bridge
Slater Investments
Hargreave Hale – Stockbrokers
4,203,146
2,254,111
2,220,400
1,587,617
1,549,629
1,483,600
1,323,929
1,059,534
929,134
916,775
901,680
15.1
8.1
8.0
5.7
5.6
5.3
4.8
3.8
3.3
3.3
3.2
The shareholding for Directors of the Company disclosed above
excludes shares held under the Company’s Joint Share Ownership
Plan (“JSOP”) in which they are beneficial co-owner of shares.
Details of such shareholdings are given on page 36 in the Report on
Remuneration. In accordance with AIM Rule 26, in so far as the
Company is aware, the percentage of the Company’s issued share
capital that is not in public hands is 3,770,029 and 13.5%
respectively. This percentage comprises the holdings of Directors of
the Company and the Employee Benefit Trust (the Company’s Joint
Share Ownership Plan).
Directors’ shareholdings
The beneficial holdings of the Directors in the Company’s issued
share capital at 31 December 2017 are as follows:
Andy Hogarth
John Crabtree OBE
Diane Martyn
Chris Pullen
Ordinary
shares of 10p
each
1,513,629
20,250
3,750
12,000
1,549,629
% of total
in issue
5.4%
0.1%
–
–
5.6%
In addition, a pension fund established for the benefit of Andy
Hogarth holds 46,875 shares in the Company.
Auditors
A resolution to re-appoint PricewaterhouseCoopers LLP as auditors
will be proposed at the forthcoming Annual General Meeting.
By Order of the Board
Paul Collins
Company Secretary
23 January 2018
Staffline Group plc Annual Report 2017 Statement of Directors’ responsibilities
in respect of the financial statements
39
Each of the Directors, whose names and functions are listed in the
Annual Report confirm that, to the best of their knowledge:
• the Company financial statements, which have been prepared in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS
101 “Reduced Disclosure Framework”, and applicable law), give a
true and fair view of the assets, liabilities, financial position and
profit of the Company;
• the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give a
true and fair view of the assets, liabilities, financial position and
profit of the Group; and
• the Annual Report includes a fair review of the development and
performance of the business and the position of the Group and
Company, together with a description of the principal risks and
uncertainties that it faces.
In the case of each Director in office at the date the Directors’ Report
is approved:
• so far as the director is aware, there is no relevant audit
information of which the Group and Company’s auditors are
unaware; and
• they have taken all the steps that they ought to have taken as a
Director in order to make themselves aware of any relevant audit
information and to establish that the Group and Company’s
auditors are aware of that information.
By Order of the Board
Paul Collins
Company Secretary
23 January 2018
Statement of Directors’ responsibilities in respect of the
financial statements
The directors are responsible for preparing the Annual Report and
the financial statements in accordance with applicable law and
regulation.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law the Directors have prepared
the Group financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union and Company financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards, comprising FRS 101 “Reduced Disclosure
Framework”, and applicable law). Under company law, the Directors
must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the Group
and Company and of the profit or loss of the Group and Company
for that period. In preparing the financial statements, the Directors
are required to:
• select suitable accounting policies and then apply them
consistently;
• state whether applicable IFRSs as adopted by the European Union
have been followed for the Group financial statements and United
Kingdom Accounting Standards, comprising FRS 101, have been
followed for the Company financial statements, subject to any
material departures disclosed and explained in the financial
statements;
• make judgements and accounting estimates that are reasonable
and prudent; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and
Company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
Company’s transactions and disclose with reasonable accuracy at
any time the financial position of the Group and Company and
enable them to ensure that the financial statements comply with the
Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
The Directors are also responsible for safeguarding the assets of the
Group and Company, and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors of the Company are responsible for the maintenance
and integrity of the of the ultimate parent Company’s website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
The Directors consider that the Annual Report and Accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group and
Company’s performance, business model and strategy.
OverviewStrategic ReportCorporate GovernanceFinancial Statements 40
Independent auditors’ report to the members of Staffline Group plc
Report on the audit of the financial statements
Opinion
In our opinion:
• Staffline Group plc’s Group financial statements and Company financial statements (the “financial statements”) give a true and fair
view of the state of the Group’s and of the Company’s affairs as at 31 December 2017 and of the Group’s profit and cash flows for the
year then ended;
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
•
•
•
We have audited the financial statements, included within the Annual Report, which comprise: the Consolidated and Company
statements of financial position as at 31 December 2017; the Consolidated statement of comprehensive income, the Consolidated and
Company statements of changes in equity and the Consolidated statement of cash flows for the year then ended; and the Notes to the
financial statements, which include a description of the significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of
our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
Our audit approach
Overview
Materiality
Audit scope
• Overall Group materiality: £1,500,000 (2016: £1,500,000),
based on 4% of underlying profit before taxation.
• Overall Company materiality: £800,000 (2016: £800,000),
based on 1% of total assets.
• Full scope audit procedures were performed over the
Staffline Recruitment Limited and PeoplePlus Group Limited
subsidiaries as they represented 15% or more of Group
revenues and/or underlying profits before tax.
• This resulted in coverage of 88% for revenue, 73% for
underlying profits before taxation and 85% of total assets.
•
Impairment of intangible assets (Group).
• Contract accounting (Group).
Key audit
matters
• Complex customer contracts (Group).
•
Impairment of investments (Company).
Staffline Group plc Annual Report 2017 41
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In
particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that
involved making assumptions and considering future events that are inherently uncertain.
As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was
evidence of bias by the Directors that represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures
thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Impairment of intangible assets (Group)
Refer to note 3 (Accounting policies – Critical accounting
judgements and estimates) and Note 11 (Goodwill).
The Group has completed a number of acquisitions over the past
decade, each of which has resulted in the recognition of
goodwill and intangible assets.
Underperformance within these acquired businesses could
impact the impairment reviews performed on a Cash Generating
Unit level. This could therefore result in impairments being
required to these assets.
Management performed a detailed impairment assessment for
each Cash Generating Unit.
We audited these assessments by checking an appropriate
model had been used, that the inputs into the model were
accurate and we confirmed the integrity of the model.
We performed sensitivity analysis on the key estimates within
the model. This did not identify a reasonable change in
assumptions which would result in a material change to the
valuations. We found the inputs to the model to be appropriate
and consistent with our knowledge of the business.
Based on the results of our audit work, we concluded that the
impairment assessment performed by management was
appropriate and consistent with the requirements of IAS 36.
Contract accounting (Group)
Refer to note 3 (Accounting policies – Critical accounting
judgements and estimates).
We compared the outcome of the prior year estimates to actual
outcomes during 2017, in order to establish the accuracy of
management’s prior estimates.
Within the PeoplePlus segment there are a number of significant
contracts which include key performance measures, bonus and/
or penalty clauses.
For accrued and deferred income, we audited management’s
calculations by validating the integrity of their models and
tracing the inputs into the models back to source data.
In recognising revenue under these contracts, a number of
significant estimates are required to be made by management,
most notably the level of expected bonuses/penalty charges
which will be settled post-year end, relating to pre-year end
activities.
In addition to the above, there is a timing difference between the
performance of the obligations within the contracts, and the
receipt of cash for the services provided. At each period end,
management are required to estimate the value of accrued
revenues.
We performed sensitivity analysis on the key estimates within
the model. This did not identify a reasonable change in
assumptions which would result in a material change to the
revenues accrued or deferred.
We also considered the completeness of accrued and deferred
revenues by reviewing the significant contracts to validate that
the revenues were being recorded in line with the contract terms
and IFRSs.
The above highlighted no material concerns over the accounting
for revenues under contracts.
OverviewStrategic ReportCorporate GovernanceFinancial Statements 42
Independent auditors’ report to the members of Staffline Group plc
Continued
Key audit matter
How our audit addressed the key audit matter
Complex customer contracts (Group)
Refer to note 3 (Accounting policies – Critical accounting
judgements and estimates).
We have reviewed customer contracts to verify the existence of
these clauses and that management’s calculations are in line
with the contractual position.
Within the Recruitment segment there are a number of complex
customer contracts. These include rebate clauses which result in
retrospective changes being made to agreed prices, depending
on key metrics over the contract life.
At the end of each reporting period, management make an
assessment as to the proportion of revenue which should be
deferred in relation to these agreements, together with an
assessment of whether any advanced discounts are recoverable.
Where individual balances are material, we have confirmed the
amounts with the counterparty.
To confirm completeness of the listing provided by management
we have examined other contracts and also agreed cash
settlements by other customers to ascertain if there were any
undisclosed agreements.
Our audit procedures highlighted no material concerns over the
recording of complex customer contracts.
Impairment of investments (Company)
Refer to note 13 (Investments).
We have audited management’s impairment assessment for
each subsidiary company.
The Company has significant investments in subsidiary
companies.
An impairment to these investments could result in an inability to
pay dividends as well as representing a significant financial loss
to the Company.
This has included validating the integrity of the model, validating
the inputs and performing sensitivity analysis over the key
estimates within the model. This did not identify a reasonable
change in assumptions which would result in a material change
to the valuation.
We found the assumptions adopted to be appropriate and
consistent with our knowledge of the business.
No issues were noted from our testing.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as
a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in
which they operate.
Staffline Group plc’s operations is split into two operating segments, Recruitment and PeoplePlus. These segments have separate
finance and management teams who report into the head office finance team. Each segment includes a number of subsidiary
companies, all of which are managed by the respective segment finance/management teams. All companies report their financial results
and position using the Group accounting policies.
In setting our audit scope, we included any individual subsidiary which contributed more than 15% to revenues or the underlying profit
before taxation. This resulted in two subsidiaries being included in full scope audit for the Group opinion, Staffline Recruitment Limited
and PeoplePlus Group Limited. These two subsidiaries combined represent 88% of the consolidated revenues, 73% of underlying profits
before taxation and 85% of total assets.
We then considered whether sufficient coverage had been obtained on an individual financial statement line item basis and concluded
that sufficient coverage was obtained through the two in scope subsidiaries. We considered whether the remaining subsidiaries had any
additional risks which could represent a material risk at the Group level and concluded that due to their relative size and complexity of
operations that there were no additional risk factors which would require the other subsidiaries to be included in our audit scope.
At the Group reporting stage, analytical review procedures were performed over all out-of-scope subsidiaries, to Group materiality. All
audit work was completed by a single audit team.
Staffline Group plc Annual Report 2017 43
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures, and in evaluating the effect of misstatements, both
individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
How we determined it
Rationale for benchmark applied
Group financial statements
Company financial statements
£1,500,000 (2016: £1,500,000).
£800,000 (2016: £800,000).
4% of underlying profit before taxation.
1% of total assets.
Based on the benchmarks used in the Annual
Report, underlying profits is the primary
measure used by the shareholders and
management in assessing the performance of
the Group, and is a generally accepted auditing
benchmark.
We believe that total assets is an appropriate
benchmark due to the Company being a
holding company.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The
materiality allocated to components was £1,350,000, this was capped at a local statutory materiality level below overall Group
materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £75,000 (Group
audit) (2016: £75,000) and £40,000 (Company audit) (2016: £50,000), as well as misstatements below those amounts that, in our view,
warranted reporting for qualitative reasons.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when:
•
•
the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt
about the Group’s and Company’s ability to continue to adopt the going concern basis of accounting for a period of at least 12
months from the date when the financial statements are authorised for issue.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s and
Company’s ability to continue as a going concern.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report
thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any
form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are
required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Report of the Directors, we also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report
certain opinions and matters as described below.
OverviewStrategic ReportCorporate GovernanceFinancial Statements 44
Independent auditors’ report to the members of Staffline Group plc
Continued
Strategic Report and Report of the Directors
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Report of the
Directors for the year ended 31 December 2017 is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements.
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we
did not identify any material misstatements in the Strategic Report and Report of the Directors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ responsibilities on page 39, the Directors are responsible for the preparation of the
financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The
Directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Company’s ability to continue as a
going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3
of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for
any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by
our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006, we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from
branches not visited by us; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
•
the Company financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Steven Kentish
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Birmingham
23 January 2018
Staffline Group plc Annual Report 2017 Consolidated statement of comprehensive income
For the year ended 31 December 2017
2017
Underlying
£’m
2017
Non-underlying*
£’m
Note
2017
Total
£’m
2016
Underlying
£’m
2016
Non-underlying*
£’m
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit/(loss)
Finance costs
Profit/(loss) for the year before
taxation
Tax expense
Profit/(loss) from continuing
operations
Profit after tax on discontinued
operations
4
5
5
6
8
9
957.8
(844.0)
113.8
(74.7)
39.1
(2.8)
36.3
(7.3)
–
–
–
(12.2)
(12.2)
–
(12.2)
1.5
29.0
(10.7)
Profit for the year
Items that will not be reclassified to the profit and loss account – actuarial
gains and (losses), net of deferred tax
Items that may be reclassified to the profit and loss account – cumulative
translation loss
Net profit and total comprehensive
income for the year
957.8
(844.0)
113.8
(86.9)
26.9
(2.8)
24.1
(5.8)
18.3
–
18.3
0.2
(0.1)
18.4
882.4
(757.5)
124.9
(84.9)
40.0
(3.3)
36.7
(7.6)
–
–
–
(17.8)
(17.8)
–
(17.8)
3.7
29.1
(14.1)
45
2016
Total
£’m
882.4
(757.5)
124.9
(102.7)
22.2
(3.3)
18.9
(3.9)
15.0
0.8
15.8
(1.1)
–
14.7
10
Earnings per ordinary share
Continuing operations:
Basic
Diluted
Discontinued operations:
Basic
Diluted
Underlying:
Basic
Diluted
71.4 pence
71.1 pence
–
–
113.2 pence
112.6 pence
59.1 pence
58.8 pence
3.2 pence
3.1 pence
114.7 pence
114.0 pence
*
the non-underlying result includes amortisation of intangible assets arising on business combinations, acquisition costs, exceptional reorganisation costs and the non-cash
credit/charge for share-based payment costs.
The accompanying notes form an integral part of these financial statements.
OverviewStrategic ReportCorporate GovernanceFinancial Statements
46
Consolidated statement of changes in equity
For the year ended 31 December 2017
At 1 January 2016
Dividends (note 10)
Sale of Joint Share Ownership Plan (“JSOP”)
shares no longer required
Share options issued in equity-settled
share-based payments
Share options vested in the year
Transactions with owners
Profit for the year
Actuarial losses (note 17)
Cumulative translation adjustments
Total comprehensive income for the year,
net of tax
At 31 December 2016
Dividends (note 10)
Issue of new shares – share options exercised
Share options issued in equity-settled
share-based payments
Transactions with owners
Profit for the year
Actuarial gains (note 17)
Cumulative translation adjustments
Total comprehensive income for the year,
net of tax
At 31 December 2017
Share
capital
£’m
2.8
–
–
–
–
–
–
–
–
2.8
–
–
–
–
–
–
–
–
Own
shares
JSOP
£’m
(9.0)
–
0.1
–
0.1
–
–
–
–
(8.9)
–
–
–
–
–
–
–
–
2.8
(8.9)
Share
premium
£’m
39.9
–
–
–
–
–
–
–
–
Share-
based
payment
reserve
£’m
0.1
–
–
0.1
(0.1)
–
–
–
–
–
39.9
0.1
–
0.4
–
0.4
–
–
–
–
40.3
–
–
–
–
–
–
–
–
0.1
Profit
and loss
account
£’m
39.4
(5.8)
1.4
–
0.1
(4.3)
15.8
(1.1)
–
14.7
49.8
(6.7)
–
–
(6.7)
18.3
0.2
(0.1)
18.4
61.5
Total
equity
£’m
73.2
(5.8)
1.5
0.1
–
(4.2)
15.8
(1.1)
–
14.7
83.7
(6.7)
0.4
–
(6.3)
18.3
0.2
(0.1)
18.4
95.8
The accompanying notes form an integral part of these financial statements.
Staffline Group plc Annual Report 2017 Company statement of changes in equity
For the year ended 31 December 2017
At 1 January 2016
Dividends (note 10)
Disposal of Joint Share Ownership Plan (“JSOP”) shares
Transactions with owners
Profit for the year
Total comprehensive income for the year, net of tax
Share
capital
£’m
2.8
–
–
–
–
–
Own
shares
JSOP
£’m
(9.0)
–
0.1
0.1
–
–
Share
premium
£’m
39.9
–
–
–
–
–
At 31 December 2016
2.8
(8.9)
39.9
Dividends (note 10)
Issue of new shares – share options exercised
Transactions with owners
Profit for the year
Total comprehensive income for the year, net of tax
–
–
–
–
–
–
–
–
–
–
–
0.4
0.4
–
–
At 31 December 2017
2.8
(8.9)
40.3
The accompanying notes form an integral part of these financial statements.
Profit
and loss
account
£’m
17.7
(5.8)
1.4
(4.4)
5.4
5.4
18.7
(6.7)
–
(6.7)
26.7
26.7
38.7
47
Total
equity
£’m
51.4
(5.8)
1.5
(4.3)
5.4
5.4
52.5
(6.7)
0.4
(6.3)
26.7
26.7
72.9
OverviewStrategic ReportCorporate GovernanceFinancial Statements 48
Consolidated and Company statements of financial position
As at 31 December 2017
Assets
Non-current assets
Goodwill
Other intangible assets
Investments
Property, plant and equipment
Deferred tax asset
Current
Trade and other receivables
Retirement benefit net asset
Cash and cash equivalents
Total assets
Liabilities
Current
Trade and other payables
Borrowings
Other current liabilities
Current tax liabilities
Non-current
Borrowings
Other liabilities inc. provisions
Deferred tax liabilities
Total liabilities
Equity
Share capital
Own shares
Share premium
Share-based payment reserve
Profit and loss account
Total equity
Total equity and liabilities
Note
11
12
13
15
22
16
17
18
19
20
21
8
20
21
22
23
Consolidated
2017
£’m
94.2
20.8
–
7.7
0.5
2016
£’m
91.6
25.8
–
8.0
0.9
123.2
126.3
107.6
1.4
31.3
140.3
263.5
103.0
8.6
5.1
3.4
120.1
39.2
5.7
2.7
47.6
167.7
2.8
(8.9)
40.3
0.1
61.5
95.8
263.5
103.1
1.2
19.7
124.0
250.3
97.5
8.6
0.5
2.5
109.1
47.8
6.2
3.5
57.5
166.6
2.8
(8.9)
39.9
0.1
49.8
83.7
250.3
Company
2017
£’m
–
–
58.3
–
–
58.3
64.1
–
–
64.1
122.4
30.2
8.6
3.3
–
42.1
4.2
3.2
–
7.4
49.5
2.8
(8.9)
40.3
–
38.7
72.9
122.4
2016
£’m
–
–
55.0
–
–
55.0
30.0
–
–
30.0
85.0
7.9
8.6
–
–
16.5
12.8
3.2
–
16.0
32.5
2.8
(8.9)
39.9
–
18.7
52.5
85.0
The Company has taken advantage of section 408 of the Companies Act 2006 and has not included its own profit and loss account in
these financial statements. The Company’s profit for the year before dividends paid was £26.7m (2016: £5.4m). The accompanying notes
form an integral part of these financial statements. The financial statements were approved by the Board of Directors on 23 January
2018 and signed on their behalf by:
A Hogarth
Director
C Pullen
Director
Staffline Group plc Annual Report 2017
Consolidated statement of cash flows
For the year ended 31 December 2017
Cash flows from operating activities
Taxation paid
Taxation received
Net cash inflow from operating activities
Cash flows from investing activities – trading
Purchases of property, plant and equipment
Sale of property, plant and equipment
Purchase of intangible assets – software
Free cash from operations
Cash flows from investing activities – acquisitions
Acquisition of businesses – cash paid, net of cash acquired
Cash flows from financing activities:
New loans (net of transaction fees)
Loan repayments
Acquisition of businesses – deferred consideration for prior year acquisitions
Interest paid
Dividends paid
Proceeds from sale of Joint Share Ownership Plan (“JSOP”) shares
Proceeds from the issue of share capital
Net cash flows (used in) financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Underlying operating profit
% free cash conversion of underlying profit
The accompanying notes form an integral part of these financial statements.
49
2016
£’m
46.9
(5.6)
1.6
42.9
(3.6)
–
(3.3)
36.0
2017
£’m
47.9
(6.7)
0.5
41.7
(2.7)
–
(1.1)
37.9
(8.1)
–
–
(8.8)
(0.4)
(2.6)
(6.7)
–
0.3
(18.2)
11.6
19.7
31.3
39.1
97%
8.9
(11.9)
(10.9)
(3.1)
(5.8)
1.5
–
(21.3)
14.7
5.0
19.7
40.0
90%
Note
29
8
8
15
12
30
10
18
OverviewStrategic ReportCorporate GovernanceFinancial Statements
50
Notes to the financial statements
For the year ended 31 December 2017
1 Nature of operations
The principal activities of Staffline Group plc and its subsidiaries (the Group) include the provision of recruitment and outsourced human
resource services to industry and services in the welfare to work arena and skills training.
2 General information and statement of compliance
Staffline Group plc, a Public Limited Company listed on AIM (“the Company”), is incorporated and domiciled in the United Kingdom. The
Company acts as the holding company of the Group. The registered office and principal place of business of the Group and its
subsidiary companies is disclosed on the Company details page to these financial statements, page 82. The Company’s registration
number is 05268636.
The financial statements for the year ended 31 December 2017 (including the comparatives for the year ended 31 December 2016) were
approved and authorised for issue by the board of Directors on 23 January 2018.
The Company does not have an ultimate controlling party.
3 Accounting policies
Basis of preparation
The consolidated financial statements are prepared for the year ended 31 December 2017. The consolidated financial statements of the
Group have been prepared on a going concern basis using the significant accounting policies and measurement bases summarised
below, and in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. The financial statements are
prepared under the historical cost convention, except for contingent consideration and cash settled share options, which are measured
at fair value.
The financial statements of Staffline Group plc have been prepared under the historical cost convention and in accordance with
International Financial Reporting Standards (IFRS) as adopted by the EU. The consolidated financial statements are presented in
sterling, which is also the functional currency of the Parent Company and Group. The principal accounting policies of the Group are set
out below.
Consolidation of subsidiaries
The Group financial statements consolidate those of the Parent Company and all of its subsidiaries as at 31 December 2017 in
accordance with IFRS 10. Subsidiaries are all entities to which the Group is exposed or has rights to variable returns and the ability to
affect those returns through power over the subsidiary. All PeoplePlus subsidiaries have a reporting date of 31 December 2017 (2016:
31 December 2016), with all Recruitment subsidiary accounts prepared for the 52 weeks ended 31 December 2017 (2016: 52 weeks ended
1 January 2017). The results of subsidiaries whose accounts are prepared in a currency other than sterling, are translated at the average
rates of exchange during the year and their year-end balances at the year-end rate. Translation adjustments are taken to the profit and
loss reserves.
Acquired subsidiaries and businesses are subject to the application of the acquisition accounting method. This involves the recognition at
fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of
whether or not they were recorded in the financial statements of the subsidiary or business prior to acquisition. On initial recognition, the
assets and liabilities of the subsidiary are included in the consolidated balance sheet at these fair values, which are also used as the
bases for subsequent measurement in accordance with the Group accounting policies.
Material intra-group balances and transactions, and any unrealised gains or losses arising from intra-group transactions, are eliminated
in preparing the consolidated financial statements.
Underlying profit – non-GAAP measures of performance
In the reporting of its financial performance, the Group uses certain measures that are not defined under IFRS, the Generally Accepted
Accounting Principles (GAAP) under which the Group reports. The Directors believe that these non-GAAP measures assist with the
understanding of the performance of the business. These non-GAAP measures are not a substitute for, or superior to, any IFRS measures
of performance but they have been included as the Directors consider them to be an important means of comparing performance
year-on-year and they include key measures used within the business for assessing performance. The Directors acknowledge that the
adjustments made to arrive at underlying profit may not be comparable to those made by other companies, mainly in respect of the
adjustment for share-based payment charges, including both equity and cash-settled components. It should be noted that whilst the
amortisation of intangible assets arising on business combinations has been added back, the revenue from those acquisitions has not
been eliminated.
Staffline Group plc Annual Report 2017 51
Non-underlying charges are regarded as recurring or non-recurring items of income or expenditure of a particular size and/or nature
relating to the operations of the business that, in the Directors’ opinion, require separate identification. These items are included in “total”
reported results but are excluded from “underlying” results. These items can vary significantly from year to year and therefore create
volatility in reported earnings which does not reflect the Group’s underlying performance. They include exceptional restructuring costs of
forming and reorganising the PeoplePlus division, share-based payment charges and credits and the amortisation of intangible assets
arising on business combinations, being either non-recurring or material in the context of our trading performance during the year.
Business combinations
The Group applies the acquisition method in accounting for business combinations. The consideration transferred by the Group to
obtain control of a subsidiary is calculated as the sum of the acquisition-date fair value of assets transferred, liabilities incurred and the
equity interests of the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement.
Acquisition costs are expensed as incurred.
Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the sum of a) fair value of consideration
transferred, b) the recognised amount of any non-controlling interest in the acquiree and c) acquisition-date fair value of any existing
equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values of identifiable net assets
exceed the sum calculated above, the excess amount (i.e. gain on a bargain purchase) is recognised in the Statement of Comprehensive
Income immediately.
Segment reporting
The Group has two material operating segments: the provision of recruitment and outsourced human resource services to industry
“Recruitment” (previously “Staffing Services”) and the provision of welfare to work, skills training and probationary services together
“PeoplePlus”. Each of these operating segments is managed separately as each requires different technologies, marketing approaches
and other resources. For management purposes, the Group uses the same measurement policies as those used in its financial
statements.
The placement of permanent staff with customers, training and the provision of outsourced logistics services all contribute less than 10%
of the Group’s total revenue, profit and assets. Under the definitions contained in IFRS 8, the only material geographic area that the
Group operates in is the United Kingdom.
Revenue recognition
Recruitment division
Income from the provision of temporary contractors is recognised at the end of the completed working week based on hours worked
multiplied by the contracted hourly rate, net of rebates. Income from permanent placements is recognised when the candidates start
work. Income from training provision is recognised evenly across the period of the training. In each case, revenue is only recognised when
the labour or service has been provided and the Group is contractually entitled to the revenue.
Provisions for rebates are accounted for in the same period the related sales are recorded, and are calculated in accordance with the
contractual arrangements in place.
The Recruitment business has a limited number of second tier arrangements whereby another recruitment company will provide
contractors to the Group to enable the Group to fulfil a customer’s requirement. Where this arrangement constitutes an agency
relationship rather than principal, no sale or cost of sale is recognised in the income statement.
PeoplePlus division
Income from the provision of welfare to work services is recognised at the point the Company earns the right to consideration for
services performed in agreement with contracts and contractual obligations. Under the terms of the contract with the Department for
Work and Pensions (“DWP”), the welfare to work segment receives income when certain contractual milestones are met as each
customer passes through the programme. The segment recognises revenue in the financial statements in line with when services are
provided and when the milestone outcome can be assessed with reasonable certainty. The majority of income is received based upon
performance against set criteria. Where income is received in advance, this is initially held in the statement of financial position as
deferred income and released to the Statement of Comprehensive Income as services are provided. Accrued income is recognised where
services have been provided in advance of receipt of income and, based on all available evidence, the Company expects to receive
payment in accordance with the contract. In spreading revenue over the period services are provided, the basis of revenue recognition
considers historical experience and future expectations in terms of success rates, and takes into account the anticipated length of period
over which the services are ultimately provided.
OverviewStrategic ReportCorporate GovernanceFinancial Statements 52
Notes to the financial statements Continued
For the year ended 31 December 2017
3 Accounting policies Continued
Revenue recognition Continued
As a standard part of the contracts with the DWP, the division receives payments when an individual is assigned to one of our
programmes. These are recognised as revenue when received as there is no ongoing obligation. Additional payments are only then made
once the individual has obtained employment and then after set periods of time have passed, if they remain in employment. When an
individual has gained employment, revenues for this are recognised when there is an expectation that this will last for the minimum
periods required (based upon historical evidence). The additional payments for sustained employment are only recognised as revenue
once the time periods specified within the contract have passed. In addition, there are bonuses and penalties within the contracts
relating to the performance of each contract. These are recognised over the period of the contract based upon historical evidence of
compliance/attainment.
Operating expenses
Operating expenses are recognised in the statement of comprehensive income when incurred and are classified according to
their nature.
Goodwill
Goodwill represents the excess of the fair value of the cost of a business acquisition over the Group’s share of the fair value of assets and
liabilities acquired as at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated
impairment losses.
Intangible assets
Assets acquired as part of a business combination
In accordance with IFRS 3 Business Combinations, an intangible asset acquired in a business combination is deemed to have a cost to
the Group of its fair value at the acquisition date. The fair value of the intangible asset reflects market expectations about the probability
that the future economic benefits embodied in the asset will flow to the Group. An independent valuation is undertaken in order to assess
the fair value of intangible assets acquired in a business combination. The fair value is then amortised over the economic life of the asset
as detailed below. Where an intangible asset might be separable, but only together with a related tangible or intangible asset, the group
of assets is recognised as a single asset separately from goodwill where the individual fair values of the assets in the Group are not
reliably measurable. Where the individual fair values of the complementary assets are reliably measurable, the Group recognises them
as a single asset provided the individual assets have similar useful lives.
Customer contracts, customer lists and licences
The fair value of acquired customer contracts, customer lists and licences is capitalised and, subject to impairment reviews, amortised
over their estimated lives (estimated to be 2-5 years). The amortisation is calculated so as to write off their fair value less their estimated
residual values over their estimated lives. An impairment review is undertaken when events or circumstances indicate the carrying
amount may not be recoverable.
Computer software
Computer software is carried at acquisition cost less subsequent amortisation and impairment losses. Amortisation is charged on the
cost less the estimated residual value, which is assessed annually, of these assets on a straight-line basis over the estimated useful
economic life of each asset.
The useful lives of computer software is 3-5 years and are amortised on a straight-line basis.
Property, plant and equipment
Freehold land and property, computer equipment, fixtures and fittings and motor vehicles are carried at acquisition cost less subsequent
depreciation and impairment losses. Depreciation is charged on the cost less the estimated residual value, which is assessed annually, of
these assets over the estimated useful economic life of each asset.
The estimated useful economic lives of property, plant and equipment and the depreciation basis can be summarised as follows:
Freehold buildings
Computer equipment
Fixtures and fittings
Motor vehicles
50 years straight line
3-5 years straight line
3-5 years straight line
25% reducing balance
Assets in the course of construction are not depreciated until they are available for use.
Staffline Group plc Annual Report 2017
53
Impairment assessment
Goodwill, other intangible assets and property, plant and equipment are subject to impairment testing.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows
(cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit
level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business
combination and represent the lowest level within the Group at which management monitors the related cash flows.
Individual intangible assets or cash-generating units that include goodwill with an indefinite useful life are tested for impairment at least
annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset’s or cash-generating units carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an
internal discounted cash flow evaluation. Impairment losses recognised for cash-generating units, to which goodwill has been allocated,
are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the
cash generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss
previously recognised may no longer exist.
Investments
Investments in subsidiary undertakings are included at cost less amounts written off. Where the consideration for the acquisition of a
subsidiary undertaking includes shares in the Company to which the provisions of Section 612 of the Companies Act 2006 apply, cost
represents the nominal value of shares issued together with the fair value of any additional consideration given and costs.
Leases
In accordance with IAS 17, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the
risks and rewards related to the ownership of the leased asset. The related asset is recognised at the time of inception of the lease at
the fair value of the leased asset or, if lower, the present value of the lease payments plus incidental payments, if any, to be borne by
the lessee.
All other leases are treated as operating leases. Payments on operating lease agreements are recognised as an expense on a straight-
line basis. Associated costs, such as maintenance and insurance, are expensed as incurred. The Group does not act as a lessor.
Taxation
Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior
reporting period, that are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to
the fiscal periods to which they relate, based on the taxable profit for the year.
Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying
amounts of assets and liabilities in the consolidated financial statements with their respective tax bases. However, in accordance with
the rules set out in IAS 12, no deferred taxes are recognised on the initial recognition of goodwill. This applies also to temporary
differences associated with shares in subsidiaries if reversal of these temporary differences can be controlled by the Group and it is
probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward, as well as other
income tax credits to the Group, are assessed for recognition as deferred tax assets.
Deferred tax liabilities are provided for in full if material. Deferred tax assets are recognised if it is probable that they will be able to be
offset against future taxable income. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are
expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the statement of
financial position date.
Most changes in deferred tax assets or liabilities are recognised as a component of tax expense in the profit or loss. Only changes in
deferred tax assets or liabilities that relate to a change in value of assets or liabilities that are charged directly in other comprehensive
income or equity are charged or credited directly to other comprehensive income or equity.
OverviewStrategic ReportCorporate GovernanceFinancial Statements 54
Notes to the financial statements Continued
For the year ended 31 December 2017
3 Accounting policies Continued
Pensions
The Group contributes to a number of pension arrangements. The schemes are generally funded through payments to insurance
companies or trustee-administered funds, determined by periodic actuarial calculations. The Group has both defined contribution and
defined benefit plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate
entity. The Group has no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all
employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that is not a
defined contribution plan. Typically, defined benefit plans define an amount of pension benefit that an employee will receive on
retirement, usually dependent on one or more factors such as age, years of service and compensation.
Defined benefit plan
The asset recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit
obligation at the end of the reporting period less the fair value of plan assets, together with adjustments for unrecognised past-service
costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present
value of the defined benefits obligation is determined by discounting the estimated future cash outflows using interest rates of high-
quality corporate bonds that have terms to maturity approximating to the terms of the related pension obligations.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity
in other comprehensive income in the period in which they arise.
Past-service costs are recognised immediately in income, unless the changes to the pension plan are conditional on the employees
remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortised on a straight-line
basis over the vesting period.
Defined contribution plan
A defined contribution plan is a pension plan under which the Group pays fixed contributions to an independent entity. The Group has no
legal or constructive obligations to pay further contributions after payment of the fixed contribution. Contributions recognised in respect
of personal pension plans are expensed as they fall due. Liabilities and assets may be recognised if underpayment or prepayment has
occurred and are included in current liabilities or current assets as they are normally of a short-term nature.
Financial assets
The Group’s financial assets include cash, trade receivables and other receivables.
All financial assets are initially recognised at fair value, plus transaction costs. They are subsequently included at amortised cost using
the effective interest rate method.
Trade receivables are provided against when objective evidence is received that the Group will not be able to collect all amounts due to it
in accordance with the original terms of the receivables.
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents include cash at bank and in hand, overdrafts and short-term
highly liquid investments, such as bank deposits, less advances from banks repayable within three months from the date of advance.
Financial liabilities
The Group’s financial liabilities include bank loans, loan notes, an overdraft facility, trade and other payables, including liabilities
for share-based payments, and other liabilities, which include deferred and contingent consideration payable in respect of
business acquisitions.
Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. All interest-related
charges are recognised as an expense in “Finance Cost” in the statement of comprehensive income.
Bank loans are raised for support of long-term funding of the Group’s operations. They are recognised at proceeds received, net of direct
issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to the profit
or loss on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent
that they are not settled in the period in which they arise.
Trade payables are recognised initially at their fair value and subsequently measured at amortised cost less settlement payments.
Dividend distributions to shareholders are included in ‘other short-term financial liabilities’ when the dividends are approved by the
shareholders’ meetings prior to the financial year end.
Contingent consideration is measured at fair value through profit or loss.
Staffline Group plc Annual Report 2017 55
Other provisions and contingent liabilities
Other provisions are recognised when present obligations will probably lead to an outflow of economic resources from the Group and
they can be estimated reliably. The timing or amount of the outflow may still be uncertain. A present obligation arises from the presence
of a legal or constructive commitment that has resulted from past events, for example, legal disputes or onerous contracts.
Provisions are measured as the estimated expenditure required to settle the present obligation, based on the most reliable evidence
available at the balance sheet date, including the risks and uncertainties associated with the present obligation. Where there are a
number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of
obligations as a whole. In addition, long-term provisions are discounted to their present values, where time value of money is material.
All provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.
In those cases where the possible outflow of economic resource as a result of present obligations is considered improbable or remote, or
the amount to be provided for cannot be measured reliably, no liability is recognised in the consolidated statement of financial position.
Equity
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
Share capital is determined using the nominal value of shares that have been issued.
Own shares is determined using the nominal value of shares that were issued to the Employee Benefit Trust in relation to the Joint
Share Ownership Plan (“JSOP”). This Trust is deemed to be controlled by the Group and therefore consolidated, resulting in the “Own
shares” deducted from equity.
The share premium account represents premiums received on the initial issuing of the share capital. Any transaction costs associated
with the issuing of shares are deducted from share premium, net of any related income tax benefits.
The share-based payment reserve represents the value of shares granted under share-based payment arrangements.
The profit and loss account includes all current and prior period results as disclosed in the statement of comprehensive income.
Dividends
Final dividends are recognised as a distribution in the period in which they are approved by the shareholders. Interim dividends are
recorded in the period in which they are paid. Distributions to owners of the Company are not recognised in the statement of
comprehensive income under IFRS, but are disclosed as a component of the statement of changes in equity.
Share-based employee remuneration
All share based payment arrangements are recognised in the consolidated financial statements. The Group operates equity settled and
cash settled share based remuneration plans for remuneration of certain of its Directors and employees.
Equity-settled share-based remuneration
All employee services received in exchange for the grant of any share-based remuneration are measured at their fair values. These are
indirectly determined by reference to the fair value of the share options awarded. Their value is appraised at the grant date and excludes
the impact of any non-market vesting conditions (for example, profitability and sales growth targets). All share-based remuneration is
ultimately recognised as an expense in profit or loss in the statement of comprehensive income with a corresponding credit to the
share-based payment reserve, net of deferred tax where applicable.
If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate
of the number of share options expected to vest. Non-market vesting conditions are included in assumptions about the number of options
that are expected to become exercisable. Estimates are subsequently revised, if there is any indication that the number of share options
expected to vest differs from previous estimates. No adjustment is made to the expense recognised in prior periods if fewer share options
ultimately are exercised than originally estimated.
Upon exercise of share options, the proceeds received net of any directly attributable transaction costs up to the nominal value of the
shares issued are allocated to share capital with any excess being recorded as share premium.
OverviewStrategic ReportCorporate GovernanceFinancial Statements 56
Notes to the financial statements Continued
For the year ended 31 December 2017
3 Accounting policies Continued
Cash-settled share-based remuneration
The Group has in place certain issued cash-settled share-based payment schemes in respect of services provided by key employees.
The share-based payment is measured at the fair value of the liability at the grant date and re-measured at fair value of the liability at
each subsequent balance sheet date. A financial liability is recognised for the fair value of the share-based payments at the date of the
grant and is re-measured at the end of each reporting period and at settlement with any changes to the fair value recognised in profit or
loss in the statement of comprehensive income. The fair value of awards is recognised over the periods in which employees render
service.
Critical judgements and estimate uncertainty in applying the Group’s accounting policies
The Directors consider that the only critical judgement in applying the accounting policies which are described above is:
•
IAS 19, together with IFRIC 14 (“The limit on a defined pension asset”), regulations only allow a surplus to be recognised as an asset in
the balance sheet to the extent that it can be recovered through reduced contributions in the future or through refunds from the
scheme. The amount that can be recognised is affected by the value of future accruals or benefits and future payments to be made
under the Recovery Plan. Having reviewed the pension scheme rules, the Directors have considered it is correct to recognise the
pension scheme asset. The Directors note that there are proposals that may lead to the modification of IFRIC 14 which the Directors
will keep under review as it may impact the recognition of a surplus arising where the trustees have discretionary rights to enhance
benefits from the pension scheme on winding up. The Directors will consider appropriate disclosures of the impact of such a
modification to the standard as appropriate. The recognised retirement benefit net asset is £1.4m (2016: £1.2m).
The Directors consider that the estimate uncertainties in applying the accounting policies which are described above are:
• Revenue recognition is an area of significant estimate. Within the PeoplePlus division there are two areas where management must
estimate the amount of revenue recognised for monies that will be paid to the division, based upon prior work performed, but not
invoiced at the year end. These relate to the expected level of bonuses/penalties that will be received/paid by the division and the
level of income to be accrued relating to unclaimed job outcome and sustainments. The key assumption within the accrued and
deferred revenue relating to bonus/penalty claims relates to the level of these, based upon historical evidence, as they are often
settled six to 12 months in arrears. Management have based their current estimates on the underlying data, the limits specified within
the contracts and historical trends. In relation to deferred income, if the level of historic claims increased/decreased by 10% then this
would have an impact of reducing/increasing revenue and profits by £0.4m.
The key assumptions in relation to the accrued income relating to unclaimed job outcomes and sustainments relates to the quantum
of claims that will be paid (at a reduced rate) and the percentage of these where successful claims can be made (and payment is
made at the full contracted rate). Revenue has been recognised based upon the historical data for the applicable contracts. In
arriving at this estimate, management have based their assessment of revenues on historical percentages of outcomes. This historical
percentage may not reflect the future claims percentage. If the rate of future claims reduced by 10%, compared to the historical
estimate, revenues and profits before tax would reduce by £0.3m. Conversely, if the percentage of successful claims were to increase
by 10%, against management expectations, then additional revenues and profits before tax of £0.3m would be recorded as at
31 December 2017.
• The Group considers goodwill and other intangible assets to be recoverable based on the three-year budget to 2020. By its nature,
this is therefore an estimate uncertainty. The annual impairment assessment in respect of goodwill requires estimates of the value-in-
use of cash generating units to which goodwill has been allocated to be calculated. As a result, estimates of future cash flows are
required, together with an appropriate discount factor for the purpose of determining the present value of those cash flows. The basis
of review of the carrying value of goodwill and other intangible assets is as detailed in note 11;
• The assumptions used in the impairment review, assessing the carrying value of goodwill versus underlying value-in-use. More details
are included in note 11;
• The estimation of the probability of the vesting conditions, attached to the JSOP, being met;
• The Group calculates the provisions for rebates based on contractual arrangements. There is an element of judgement included in this
calculation, with the Group taking into account historical experience and future expectations;
• The Group has dilapidation provisions against its leased property estate. The provision is determined based on an independent
valuation of the estimated total cost payable on expiry of the respective lease. The timing and value of the costs are uncertain due to
exit date and the final liability will be subject to negotiation and is therefore an estimate uncertainty; and
• The fair value adjustments included in note 11 relating to the acquisitions during the year. On initial recognition, the assets and
liabilities of the acquired business and the consideration paid for them are included in the consolidated financial statements at their
fair values. In measuring fair value, management uses estimates of future cash flows and discount rates. Any subsequent change in
these estimates would affect the amount of goodwill if the change qualifies as a measurement period adjustment. Any other change
would be recognised in profit or loss in the statement of comprehensive income in the subsequent period.
Staffline Group plc Annual Report 2017
57
Adoption of new or amended IFRS
The Group has not early adopted the following new standards, amendments or interpretations that have been issued but are not yet
effective, based on EU mandatory effective dates, for periods commencing on 1 January 2018.
•
IFRS 2 Share-based payment: Amendments to clarify the classification and measurement of share-based payment transactions
(IASB effective date 1 January 2018);
IFRS 9 Financial Instruments (IASB effective date 1 January 2018);
IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018);
IFRS 16 Leases (effective 1 January 2019)*; and
IFRIC 14 Limit of Defined Benefit Asset: The impact of this is disclosed within critical judgments.
•
•
•
•
* Not endorsed by the EU (as at 23 January 2018)
The impact of accounting standards IFRS 9, IFRS 15 and IFRS 16 has been considered by the Group in detail given their potential to
impact the financial results. The relevant impacts have been disclosed on page 23 of the Chief Financial Officer’s Report.
4 Segmental reporting
Management currently identifies two operating segments: the provision of recruitment and outsourced human resource services to
industry (“Recruitment”) and the provision of welfare to work services, skills training and probationary services – collectively this
segment is called “PeoplePlus”. These operating segments are monitored by the Chief Operating Decision Maker and the Group’s Board,
and strategic decisions are made on the basis of segment operating results.
Segment information for the reporting year is as follows:
Recruitment
2017
£’m
PeoplePlus
2017
£’m
Segment continuing operations:
Sales revenue from external customers
Cost of sales
Segment gross profit
Administrative expenses (underlying)
Depreciation, software amortisation
Segment underlying operating profit*
Administrative expenses – share-based
payment (charge)/credit
Administrative expenses – reorganisation
costs
Administrative expenses – transaction costs
Amortisation of intangibles arising on
business combinations
Segment profit from operations
Finance costs
Segment profit before taxation
Tax expense
Segment profit from continuing operations
Total non-current assets
Total current assets
Total assets (consolidated)
Total liabilities (consolidated)
Capital expenditure inc. software
843.3
(777.2)
66.1
(45.1)
(0.8)
20.2
(3.4)
–
–
(2.1)
14.7
(2.8)
11.9
(3.3)
8.6
75.3
108.5
183.8
147.6
2.5
114.5
(66.8)
47.7
(25.2)
(3.6)
18.9
–
–
–
(6.7)
12.2
–
12.2
(2.5)
9.7
47.9
31.8
79.7
20.1
1.3
Recruitment
2016
£’m
PeoplePlus
2016
£’m
Total
Group
2017
£’m
957.8
(844.0)
113.8
(70.3)
(4.4)
39.1
740.8
(679.5)
61.3
(41.8)
(0.7)
18.8
(3.4)
2.9
–
–
(8.8)
26.9
(2.8)
24.1
(5.8)
18.3
123.2
140.3
263.5
167.7
3.8
(0.2)
(0.1)
(1.7)
19.7
(3.1)
16.6
(2.8)
13.8
68.7
95.9
164.6
139.6
1.4
Total
Group
2016
£’m
882.4
(757.5)
124.9
(80.0)
(4.9)
40.0
2.9
(8.2)
(0.1)
141.6
(78.0)
63.6
(38.2)
(4.2)
21.2
–
(8.0)
–
(10.7)
(12.4)
2.5
(0.2)
2.3
(1.1)
1.2
57.6
28.1
85.7
27.0
5.5
22.2
(3.3)
18.9
(3.9)
15.0
126.3
124.0
250.3
166.6
6.9
* Segment underlying operating profit stated before amortisation of intangibles arising on business combinations, acquisition costs, exceptional reorganisation costs and
share-based payment credits/charges.
OverviewStrategic ReportCorporate GovernanceFinancial Statements 58
Notes to the financial statements Continued
For the year ended 31 December 2017
4 Segmental reporting Continued
All head office costs are allocated to the Recruitment division in the above results. This results from the historical nature of the Group,
with the PeoplePlus division only being formed in the past couple of years, and reflects where the costs are predominantly incurred.
During 2017, one customer in the Recruitment segment contributed greater than 10% of the Group’s revenue, representing £101m or 12.0%
of that segment’s revenues (2016: one customer representing £93m or 12.6%); the amount receivable from this customer at 31 December
2017 is £12.3m (2016: £13.6m). The PeoplePlus segment had no customer contributing more than 10% of the Group’s revenue during either
2017 or 2016.
5 Expenses by nature
Expenses by nature are as follows:
Underlying expenses
Employee benefits expenses – cost of sales
Employee benefits expenses – administrative expenses
Depreciation and software amortisation
Operating lease expenses (note 25)
Other expenses
Disclosed as:
Cost of sales
Administrative expenses – underlying
2017
£’m
815.5
39.7
4.4
5.6
53.5
918.7
844.0
74.7
918.7
2016
£’m
733.4
39.2
4.9
7.6
57.3
842.4
757.5
84.9
842.4
Auditors’ remuneration in their capacity as auditors of the Parent Company is £13,750 (2016: £13,750) and in their capacity as auditor of
subsidiary companies is £166,250 (2016: £181,250). Non-audit remuneration in respect of potential acquisitions totalled £75,000 (2016:
£nil), in respect of tax compliance services totalled £11,000 (2016: £27,000) and in respect of other advice totalled £50,000 (2016:
£44,000). The other advice this year relates to assistance with IFRS changes, certification of year-end covenant reporting and assistance
in the liquidation of dormant companies.
A further £49.2m of 2016 costs has been reclassified this year, from Other expenses to Employee benefits expenses (cost of sales) to
better reflect the nature of the expense.
Non-underlying administrative expenses
Amortisation of intangible assets arising on business combinations (licences, customer contracts)
Share-based payment charges/(credit) – directors
Share-based payment charges/(credit) – other senior executives
Transaction costs
Reorganisation costs
Impairment of tangible fixed assets (reorganisation related)
Tax credit on above non-underlying expenses
Post taxation effect on above non-underlying expenses
2017
£’m
8.8
2.1
1.3
–
–
–
12.2
(1.5)
10.7
2016
£’m
12.4
(0.8)
(2.1)
0.1
6.6
1.6
17.8
(3.7)
14.1
The charge for amortisation of intangible assets arising on business combinations in 2017 relates principally to the acquisition of A4e
(£5.6m charge: asset fully amortised in February 2019), Milestone (£1.0m charge) and Diamond (£0.6m charge) businesses in 2015
together with the Avanta business acquired in 2014 (charge £1.1m: asset fully amortised by the end of 2017).
The share-based payment charge this year arose due principally to the 23% increase in the Company’s share price during the year.
The reorganisation costs noted above for 2016 relate to the integration of acquisitions to form the PeoplePlus division. This process was
started in 2015 and completed in 2016.
Staffline Group plc Annual Report 2017 6 Finance costs
Interest payable on financing arrangements (includes term loan, loan notes, overdraft and amortisation of
debt issue costs)
Pension interest (income)
Total
7 Directors’ and employees’ remuneration
Employee benefits expense – consolidated
Expense recognised for employee benefits is analysed below:
Wages and salaries
Social security costs
Other pension costs – defined contribution plans
Other pension costs – defined benefit plan service cost
Share-based payment charge/(credit) – cash settled
Share-based payment charge – equity settled
Included in administrative expenses (note 5)
Included in cost of sales
Share-based payment charge/(credit)
59
2016
£’m
3.4
(0.1)
3.3
2016
£’m
79.9
7.7
2.0
0.2
89.8
(3.0)
0.1
86.9
39.2
50.6
(2.9)
86.9
2017
£’m
2.9
(0.1)
2.8
2017
£’m
72.3
6.7
2.0
0.2
81.2
3.3
0.1
84.6
39.7
41.5
3.4
84.6
The average monthly number of persons (including Directors) employed by the Group during the year was:
– Sales and administrative
2017
Number
2016
Number
2,357
2,793
Included in cost of sales are temporary workers’ remuneration paid through the temporary payroll of subsidiary companies as follows:
Wages and salaries
Social security costs
The average monthly number of temporary workers contracted by the Group during the year was:
2017
£’m
733.0
41.0
774.0
2016
£’m
648.1
34.7
682.8
Number
43,415
Number
40,894
A further £49.2m has been reclassified in 2016 into Wages and salaries to better reflect the nature of the expense.
The average number of persons (including Directors) employed by the Company during the year was 6 (2016: 6). Employee costs were
£nil (2016: £nil). All directors of the Group are remunerated through a subsidiary of the Company for their services to the Group as a
whole. No direct recharge was made to the Company during the year (2016: £nil).
Directors’ remuneration is detailed on pages 35 to 37 of the Report on Remuneration.
OverviewStrategic ReportCorporate GovernanceFinancial Statements 60
Notes to the financial statements Continued
For the year ended 31 December 2017
7 Directors’ and employees’ remuneration Continued
Share-based employee remuneration
Save As You Earn (“SAYE”) share option plan
In October 2017, Staffline granted options to employees as part of its Save As You Earn (“SAYE”) share scheme for 2017. Eligible
employees were invited to subscribe for options over Staffline’s ordinary shares of 10p each (“Ordinary Shares”) with an exercise price of
£9.32, a 20% discount to the closing middle market price on the trading day before the invitation to participate was made. The options
have a contract start date of 1 December 2017 and are exercisable between 1 December 2020 and 31 May 2021. A total of 290 employees
elected to participate, and, pursuant to these elections, a total of 148,276 options over Ordinary Shares were granted on 26 October
2017, equating to 0.53% of the current issued share capital of 27,849,389 shares. These shares will be issued to participants from the
2,220,400 ordinary 10p shares currently held by the Employee Benefit Trust, issued by the Group in accordance with Joint Share
Ownership Plans (“JSOP”) on 6 September 2010 and 4 July 2013.
Performance Related Share Option Plan
Other than options granted to Diane Martyn and Chris Pullen (both directors of the Company), details of which are fully disclosed within
the Report on Remuneration on pages 35 to 37, no other performance related share options have been granted.
Except as noted under the Joint Share Ownership Plan below, all share based employee remuneration will be settled in equity. The Group
has no other legal or constructive obligation to repurchase or settle the options in cash.
Joint Share Ownership Plan
In July 2013, the Company established a Joint Share Ownership Plan (“JSOP”) to provide additional incentives to certain Directors and
senior executives.
The Directors and senior executives participating in the JSOP acquired an interest in the shares jointly with the Staffline Group plc
Employee Benefit Trust (“EBT”). At the end of the financial year, the EBT held 2,220,400 (2016: 2,220,400) ordinary 10p shares to satisfy
participants interests when the Scheme vests in June 2018:
Directors
Other executives
No longer required
Number of
participants
remaining
31 December 2017
Interest over
(number of shares)
31 December 2016
Interest over
(number of shares)
Date on which
exercisable
3
6
9
750,000
425,000
1,045,400
750,000 30/06/2018
425,000 30/06/2018
1,045,400 30/06/2018
2,220,400
2,220,400
The Directors’ interests are detailed in the Report on Remuneration on pages 35 to 37. 1,045,400 shares held by the EBT but no longer
required to satisfy interests in the 2013 JSOP scheme (due to employee leavers) will be used to satisfy requirements under future JSOP
schemes and SAYE plans.
The JSOP shares are held jointly between the Director and the Staffline Group plc Employee Benefit Trust. Under the terms of the JSOP
rules, the Directors are eligible to receive the excess of any disposal proceeds received for the JSOP shares over the participation price.
The JSOP shares do not carry dividend or voting rights whilst they are jointly held by the Director and the Staffline Group plc Employee
Benefit Trust. For the July 2013 award, the shares vest at the minimum number when the underlying diluted Earnings Per Share (“EPS”)
before non-underlying net charges exceeds 56p in any full year up to and including 2017. The shares vest at the maximum number when
a) the underlying diluted EPS before non-underlying net charges equals 93.5p in any full year and b) the increase in total shareholder
return exceeds the increase in the FTSE AIM All Share Total Return Index. If underlying diluted EPS before non-underlying net charges
does not equal 56p in any full year up to and including December 2017, the Directors’ interest in the shares lapses. If the increase in total
shareholder return does not exceed the increase in the FTSE AIM All Share Total Return Index for the five-year period to June 2018, the
shares only vest at 50% of the maximum number.
Underlying diluted Earnings Per Share (“EPS”) before non-underlying net charges is disclosed in note 10. The figure for 2016 was 114.0p so
the EPS condition has been achieved. From 4th July 2013 to 31 December 2017, the Staffline Group plc share price has increased by 153%
compared to an increase of 52% over the same period in the FTSE AIM All Share Total Return Index. The expectation is therefore that the
maximum number of shares will vest in June 2018.
Staffline Group plc Annual Report 2017 61
The Joint Share Ownership Plan (“JSOP”) is settled in cash and therefore accounted for as a cash-settled scheme. The fair value of the
liability was determined using the Binomial valuation model as at 31 December 2017. Significant inputs into the calculations were:
• share price at date of grant (July 2013 grant of 1,085,000 shares at 411.5 p per share, December 2013 grant of 90,000 shares at 563p
per share);
• exercise prices based on the December 2017 year-end share price of 1,040p per share;
• an average of 30.9% (2016: 35.6%) volatility based on expected and historical share price;
•
•
• assumption that no further relevant employees will leave before the vesting date (liability calculated based on existing
risk free interest rate of 0.364% (2016: 0.003%);
the disposal of shares by EBT on 30 June 2018 (50% settlement of scheme to participants in July 2018, balance in July 2019); and
employees, with exception of P Ledgard as noted earlier) and excludes those who have left the Group and whose entitlements have
been forfeited.
Share-based employee remuneration
In total, a charge of £3.4m of employee remuneration expense has been included in the consolidated statement of comprehensive income for
the year ended 31 December 2017 (2016: credit of £2.9m) which increased the share-based payment reserve by £nil (2016: £nil) in respect of
equity-settled schemes and increased the liability by £3.4m (2016: reduced liability by £2.9m) in respect of cash-settled schemes.
Key management personnel
The key management are considered to be the Board of Directors of Staffline Group plc, whose remuneration can be seen in the Report
on Remuneration on pages 35 to 37, and the divisional Directors who participate in the JSOP. The aggregate remuneration for the
divisional Directors for the year is £1.1m (2016: £1.6m). In addition, compensation payments of £nil (2016: £0.3m) were made on the
departure of three divisional Directors during the prior year. Disclosures in accordance with IAS 24 are included in note 24.
8 Tax expense
The tax charge on the profit for the year consists of:
UK corporation tax at 19.25% (2016: 20.00%)
Adjustments in respect of prior years
UK current tax charge
Deferred tax
Timing differences arising in the year
Adjustments in respect of prior years
UK deferred tax (credit)
Total UK tax charge for the year
2017
£’m
6.9
0.1
7.0
(1.6)
0.4
(1.2)
5.8
2016
£’m
6.0
0.3
6.3
(2.4)
–
(2.4)
3.9
The net adjustments in respect of prior years’ charge of £0.5m (current £0.1m, deferred £0.4m) arose largely from a reassessment of the
level of tax provisions required and a reassessment of the tax deductability of amortisation on certain intangible fixed assets (2016:
charge of £0.3m – current).
The charge can be further analysed by division and by underlying/non-underlying trading as follows:
Recruitment division
PeoplePlus division
Total UK tax charge for the year
Underlying trading
Non-underlying trading (credit)
Total UK tax charge for the year
2017
£’m
3.3
2.5
5.8
7.3
(1.5)
5.8
2016
£’m
2.8
1.1
3.9
7.6
(3.7)
3.9
OverviewStrategic ReportCorporate GovernanceFinancial Statements 62
Notes to the financial statements Continued
For the year ended 31 December 2017
8 Tax expense Continued
The tax charge for the year, as recognised in the statement of comprehensive income, is higher than the standard rate of corporation tax
in the UK of 19.25% (2016: 20.00% higher), being the weighted average annual corporation tax rate for the full financial year (nine months
at 19.00% and three months at 20.00%). The differences are explained below:
Profit for the year before taxation
Tax rate
Tax on profit for the year at the standard rate
Effect of:
Depreciation charge in excess of capital allowances
Amortisation of intangible assets arising on business combinations
JSOP charges/(credits) not taxable
Change in deferred tax rate to 17.00%
Adjustments in respect of prior years
Others net
Actual tax expense
On underlying profit
On non-underlying profit
Actual tax expense
Underlying pre-tax profit for the year
Effective underlying current tax rate for the year
Effective underlying total tax rate for the year
Effective total tax rate for the year
2017
£’m
Current tax
24.1
19.25%
4.6
0.2
1.6
0.6
–
0.1
(0.1)
7.0
7.0
–
7.0
2017
£’m
Deferred tax
–
–
–
0.3
(1.6)
–
(0.3)
0.4
–
(1.2)
0.3
(1.5)
(1.2)
2017
£’m
Total
24.1
19.25%
4.6
0.5
–
0.6
(0.3)
0.5
(0.1)
5.8
7.3
(1.5)
5.8
36.3
19.3%
20.1%
24.1%
2016
£’m
Total
18.9
20.00%
3.8
0.4
–
(0.6)
–
0.3
–
3.9
7.6
(3.7)
3.9
36.7
21.0%
20.6%
20.6%
The effective total tax rate of 24.1% is greater than the UK corporation tax rate of 19.25% for the year due to the tax charge adjustment
relating to the prior year of £0.5m and due to the JSOP profit and loss charge not being deductible under UK corporation tax and
therefore added back to taxable profits.
Changes to the UK corporation tax rates were announced in the Chancellor’s Budget in July 2015 (legislation passed in November 2015).
These include reductions to the main rate to reduce the rate from 20.0% to 19.0% from 1 April 2017. In March 2016, it was further
announced in the Chancellor’s budget that the UK corporation main tax from 1 April 2020 will be reduced from 19% to 17% (legislation
enacted in September 2016). As a result of this change, UK deferred tax balances have been remeasured at 17.0% (2016: 19.0%).
The Board continues to seek to improve the transparency and communication of the Group’s tax affairs. In 2017, the Group
was delighted to be re-awarded its Fair Tax Mark. A copy of the Group’s tax strategy is available at
www.stafflinegroupplc.co.uk/investorrelations/grouptaxstrategy.
The amortisation charge relating to intangible assets arising on business combinations and the JSOP profit and loss charge (2016: credit)
are not deductible under UK corporation tax and are therefore added back to taxable profits. A deferred tax liability is recognised in
respect of consolidated intangible assets. This liability is reduced each year in line with the amortisation charge, giving rise to a deferred
tax credit each year. No deferred tax is recognised on the JSOP charges.
There are no material profits arising overseas and accordingly no disclosures relating to overseas tax are included within the
financial statements.
Staffline Group plc Annual Report 2017 The current tax liability at the end of 2017 of £3.4m (2016: £2.5m) can be analysed as follows:
Liability at the beginning of the year
Charge on profits for the year
Paid in the year (net of repayments)
Liabilities on business acquisitions/others
Liability at the end of the year
Balance of 2017 tax year liabilities
Balance of 2016 tax year liabilities
Balance of 2015 tax year liabilities
Liability at the end of the year
63
2016
£’m
0.4
6.3
(4.0)
(0.2)
2.5
–
1.7
0.8
2.5
2017
£’m
2.5
7.0
(6.2)
0.1
3.4
3.4
–
–
3.4
The 2017 year-end liability is scheduled to be paid in two equal instalments in January and April 2018.
9 Assets held for sale and discontinued operations
During 2015, the Board decided to dispose of its interests in PeoplePlus Enterprises Pty Limited (formerly A4e Pty Limited – “A4e
Australia”) and its related subsidiaries. In accordance with ‘IFRS 5 Non-current assets held for sale and discontinued operations’, the
post-acquisition results of A4e Australia were disclosed in the 2016 income statement as discontinued operations – breakdown included
in the table below.
The total assets and total liabilities of A4e Australia were held as current assets held for sale and current liabilities held for sale
respectively as at 31 December 2015. The sale was completed in April 2016 for net proceeds of £nil. In addition to the £0.8m of net
liabilities reported as held for resale as at 31 December 2015, operating losses of £0.2m were incurred in 2016 to the date of disposal.
Thus a net profit of £1.0m was reported in 2016 on the disposal of A4e Australia (£nil proceeds, £1.0m net liabilities at date of disposal).
The cash flows of A4E Australia were consistent with the operating results.
Sales
Cost of sales
Gross result
Administrative expenses
Operating loss
Profit on disposal of subsidiary
Profit before and after taxation – discontinued operations
2017
£’m
–
–
–
–
–
–
–
2016
£’m
1.7
(1.7)
–
(0.2)
(0.2)
1.0
0.8
10 Earnings per share and dividends
The calculation of basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted
average number of shares in issue during the year, after deducting any shares held in the Joint Share Ownership Plan or (“JSOP”) –
“own shares” (2017 year end 2,220,400 shares; 2016 year end 2,220,400 shares). The calculation of the diluted earnings per share is
based on the basic earnings per share as adjusted to further take into account the potential issue of ordinary shares resulting from share
options granted to certain Directors and share options granted to employees in 2017 under the SAYE scheme.
OverviewStrategic ReportCorporate GovernanceFinancial Statements 64
Notes to the financial statements Continued
For the year ended 31 December 2017
10 Earnings per share and dividends Continued
Details of the earnings and weighted average number of shares used in the calculations are set out below:
Earnings from continuing operations (£’m)
Earnings from discontinued operations (£’m)
Weighted average number of shares (000)
Earnings per share (pence):
Continuing
Discontinued
Underlying earnings from continuing operations (£’m)
Underlying earnings per share (pence)*
Basic
2017
18.3
–
25,621
71.4p
–
29.0
113.2p
Basic
2016
15.0
0.8
25,367
59.1p
3.2p
29.1
114.7p
Diluted
2017
18.3
–
25,756
71.1p
–
29.0
112.6p
Diluted
2016
15.0
0.8
25,520
58.8p
3.1p
29.1
114.0p
* Underlying earnings after adjusting for amortisation of intangibles arising on business combinations, share-based payment credits/charges, acquisition-related costs and
exceptional reorganisation costs including the tax effect.
The weighted average number of shares (basic) has been increased by 254,000 (2016: 484,000) shares to take account of the full-year
effect of the 170,000 shares sold by the 2010 JSOP scheme in December 2016 as no longer required and the 100,000 of new shares
issued in January 2017 to satisfy the exercising of share options by D Martyn, a director of the Company.
Dividends
During the year, Staffline Group plc paid dividends of £6.7m (2016: £5.8m) to its equity shareholders:
Interim 2017 paid November 2017
(Interim 2016: paid November 2016)
Final 2016 paid July 2017
(Final 2015: paid July 2016)
Total paid during the year
2017
£’m
2.8
3.9
6.7
2016
£’m
2.7
3.1
5.8
2017
per share
(pence)
11.0p
15.3p
26.3p
2016
per share
(pence)
10.5p
12.5p
23.0p
A final dividend for 2017 of £4.0m has been proposed (2016: £3.9m – paid July 2017) but has not been accrued within these financial
statements. This represents a payment of 15.7 pence (2016: 15.3 pence) per share. The final dividend for 2017 is proposed for payment in
July 2018.
11 Goodwill
Gross carrying amount – Group
At 31 December 2015
Additions – Paragon Training (NI) Limited
At 31 December 2016
Additions – Driver & Labour Recruit Limited (see (a) below)
Additions – Brightwork Limited (see (b) below)
At 31 December 2017
The breakdown of goodwill carrying value by division is noted below:
Recruitment division
PeoplePlus division
Total
Division
PeoplePlus
Recruitment
Recruitment
Total
£’m
91.5
0.1
91.6
–
2.6
94.2
31 December
2017
£’m
31 December
2016
£’m
37.2
57.0
94.2
34.6
57.0
91.6
Staffline Group plc Annual Report 2017 65
Management consider there to be two cash generating units (in line with the business segments defined in note 4) and have tested these
two cash generating units for impairment.
For both segments, the recoverable amount of goodwill was determined based on a value-in-use calculation, covering a detailed
three-year forecast, followed by an extrapolation of expected cash flows over the next two years with a pre-tax discount rate of 11.0%
(2016: 10.7%) based on weighted average cost of capital. The Recruitment annual profit growth rates for the three-year forecasts are
between 12% and 20% and are based on the continuation of historic organic growth achieved by the business over the past three years
and planned acquisitions. This has been achieved by sales growth from both existing and new customers and acquisitions. The growth
rate for Recruitment exceeds the long-term average growth rate for the market but this is deemed reasonable based on a) the growth
experienced over the past three years and b) the detailed business plans for 2018–2020. Beyond the three-year forecast, no growth has
been included in the calculation on the grounds of prudence. The PeoplePlus annual profit growth rate is also assumed to be nil beyond
the 2018–2020 three-year forecast, due to the uncertainty around the run-off of the DWP Work Programme contracts and the growth of
other contracts including Apprenticeships. Margins for both divisions have been forecast to follow current trends.
The results of the impairment review discussed above showed significant headroom in both cash generating units and accordingly no
impairment is noted. Apart from the considerations described in determining the value-in-use of the cash generating units above, the
Directors do not believe that any reasonably possible changes in the assumptions used in calculating the value-in-use would result in the
recoverable amount of goodwill falling below the carrying value and impairment becoming necessary. The review also indicates that no
provision is required to write down the carrying value of other intangible assets and tangible fixed assets (2016: £nil).
As at 31 December 2017 the Company had no Goodwill (2016: £nil).
Additions
a) Driver & Labour Recruit Limited
On 5 March 2017, the Recruitment division of the Group acquired 100% of the issued ordinary share capital of Driver & Labour Recruit
Limited, a staffing recruitment company trading as Oak Recruitment in the Republic of Ireland. Initial consideration of £0.3m was paid
with a further £0.3m deferred consideration payable in four quarterly instalments commencing June 2017 and ending in March 2018
(£0.2m paid out this financial year with £0.1m provided for at the financial year end). £0.1m of net assets were acquired. In accordance
with IFRS 3 Business Combinations, the Directors made an initial assessment of the fair values of the acquired assets and liabilities,
which, along with identified fair value adjustments, are shown in the table below, all subject to further fair value review.
A summary of the acquisition is as follows:
Intangible fixed assets – software
Property, plant and equipment
Trade and other receivables
Accrued income
Cash and bank
Trade and other payables
Corporation tax payable
Invoice financing loan
Net assets/(liabilities) acquired
Intangible assets identified – customer contracts/lists
Deferred tax liability on acquired intangibles
Goodwill (not tax deductible)
Consideration
Balance sheet
as at
5 March 2017
£’m
Fair value
adjustments
£’m
Provisional
fair value
31 December 2017
£’m
–
–
0.9
–
0.1
(0.4)
–
(0.4)
0.2
–
–
–
–
–
(0.1)
–
–
(0.1)
–
–
0.9
–
0.1
(0.5)
–
(0.4)
0.1
0.6
(0.1)
–
0.6
At 5 March 2017, the trade and other receivables balance in the table above amounts to gross receivables of £0.9m and provisions of £nil.
OverviewStrategic ReportCorporate GovernanceFinancial Statements 66
Notes to the financial statements Continued
For the year ended 31 December 2017
11 Goodwill Continued
b) Brightwork Limited
On 15 May 2017, the Recruitment division of the Group acquired 100% of the issued share ordinary capital of Brightwork Limited, a
staffing recruitment company based in Scotland. Initial consideration of £2.5m was paid, with a further £2.7m deferred consideration
payable in five quarterly instalments commencing August 2017 and ending in August 2018 (£1.1m paid out this financial year with £1.6m
provided for at the financial year end). £0.2m of net liabilities were acquired. In accordance with IFRS 3 Business Combinations, the
Directors made an initial assessment of the fair values of the acquired assets and liabilities, which, along with identified fair value
adjustments, are shown in the table below, all subject to further fair value review. A summary of the acquisition is as follows:
Intangible fixed assets – software
Property, plant and equipment
Trade and other receivables
Accrued income
Cash and bank
Trade and other payables
Corporation tax payable
Invoice financing loan
Net assets/(liabilities acquired)
Intangible assets identified – customer contracts/lists
Deferred tax liability on acquired intangibles
Goodwill (not tax deductible)
Consideration
Balance sheet
as at
15 May 2017
£’m
Fair value
adjustments
£’m
Provisional
fair value
31 December 2017
£’m
0.1
0.2
6.5
0.8
1.8
(3.1)
(0.1)
(5.5)
0.7
(0.1)
(0.2)
(0.2)
–
–
(0.4)
–
–
(0.9)
–
–
6.3
0.8
1.8
(3.5)
(0.1)
(5.5)
(0.2)
3.5
(0.7)
2.6
5.2
At 15 May 2017, the trade and other receivables balance in the table above amounts to gross receivables of £6.5m and provisions of £nil.
Together, Oak Recruitment and Brightwork contributed revenues of £32.3m and profit after tax of £0.7m in the period from date of
respective acquisitions to 31 December 2017.
If the acquisitions of Oak Recruitment and Brightwork Limited had occurred on 1 January 2017, the Group’s revenues and profit after tax
for the year ended 31 December 2017 would have increased by £12.8m and £nil respectively, to £970.6m and £18.3m respectively.
12 Other intangible assets
The Group’s other intangible assets include the customer contracts and lists obtained through the acquisition of businesses plus
acquired software. There are no intangible assets with restricted title.
Gross carrying amount
At 1 January 2016
Additions
At 31 December 2016
Additions
Additions through business combinations (see note 11)
Transfer from property, plant and equipment
At 31 December 2017
Amortisation
At 1 January 2016
Charged in the year
At 31 December 2016
Charged in the year
At 31 December 2017
Net book amount at 31 December 2017
Net book amount at 31 December 2016
Software
£’m
Licenses
£’m
Customer
contracts
£’m
Customer
lists
£’m
5.6
3.3
8.9
1.1
–
0.2
10.2
0.9
1.8
2.7
1.6
4.3
5.9
6.2
2.0
–
2.0
–
–
–
2.0
1.5
0.5
2.0
–
2.0
–
–
45.4
–
45.4
–
4.1
–
49.5
13.9
11.9
25.8
8.8
34.6
14.9
19.6
5.5
–
5.5
–
–
–
5.5
5.5
–
5.5
–
5.5
–
–
Total
£’m
58.5
3.3
61.8
1.1
4.1
0.2
67.2
21.8
14.2
36.0
10.4
46.4
20.8
25.8
Staffline Group plc Annual Report 2017
As at 31 December 2017, there are six individually material other intangible assets:
Customer contracts in A4e Limited
Customer contracts in Brightwork
Customer contracts in Milestone Operations
Software developed for the Ministry of Justice contract
Payroll and Credit Control software developed for
Recruitment division
Software developed for the Work Programme contract
Others
Net book amount at 31 December 2017
Software
£’m
Licenses
£’m
Customer
contracts
£’m
Customer
lists
£’m
–
–
–
2.9
1.5
1.3
0.2
5.9
–
–
–
–
–
–
–
7.1
3.1
2.6
–
–
2.1
14.9
–
–
–
–
–
–
–
The Company’s intangible asset relates to a software license which has been written down to £nil net book value:
Net book value at 31 December 2015
Amortisation charged in the year
Net book value at 31 December 2016
Amortisation charged in the year
Net book value at 31 December 2017
13 Fixed asset investments – Company
Cost and net book amount at 31 December 2015
Movement in JSOP investment
Cost and net book amount at 31 December 2016
Movement in JSOP investment
Cost and net book amount at 31 December 2017
67
Total
£’m
7.1
3.1
2.6
2.9
1.5
1.3
2.3
20.8
Total
£’m
0.5
(0.5)
–
–
–
Investment
in group
undertakings
£’m
58.0
(3.0)
55.0
3.3
58.3
The net charge (2016: credit) to the investments carrying value relates to the movement in relation to the Joint Share Ownership Plan.
As at 31 December 2017, the Company holds interests in the following companies:
Subsidiaries
Registered office: 19-20 The Triangle, NG2 Business Park, Nottingham,
NG2 1AE
A4e Limited
A La Carte Recruitment Limited*
Broomco (4198) Limited*
Eos Works Group Limited
Learning Plus System Limited
PeoplePlus Group Limited*
Softmist Limited*
Staffline Appointments Limited (formerly Select Appointments Limited)*
Staffline Holdings Limited
Staffline Recruitment Limited
Proportion of
ordinary share
capital held
Country of incorporation
Nature of business
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Welfare to Work
Dormant
Intermediary holding
Intermediary holding
Training
Welfare to Work
Training
Recruitment
Intermediary holding
Recruitment
OverviewStrategic ReportCorporate GovernanceFinancial Statements 68
Notes to the financial statements Continued
For the year ended 31 December 2017
13 Fixed asset investments – Company Continued
Subsidiaries
Registered office: 19-20 The Triangle, NG2 Business Park, Nottingham,
Proportion of
ordinary share
capital held
Country of incorporation
Nature of business
NG2 1AE (continued)
A4e Enterprise Limited*
A4e Wales Limited*
A4e Europe Limited*
A4e Worldwide Limited*
Action For Employment Trustees Limited*
Agency Plus Limited*
Driving Plus Limited *
Eos Works Limited*
Eos Services Limited (formerly Taskforce Recruitment Limited)*
JFDI Group Limited
Network Projects Limited*
Onsite Partnership Limited
Skillspoint Limited*
Staffline Limited
Staffline Trustees Limited*
Techsearch Technology Limited*
Registered office: ul. Fryderyka Chopina 2, 44-100 Gliwice, Poland
Staffline Polska Sp. zoo*
Staffline Recruitment Gliwice Sp. zoo*
Go New Sp. Zoo *
Registered office: Fitzwilliam Hall, Ballsbridge, Dublin 2
Staffline Recruitment Limited
Registered office: 38a Mallusk Road, Newtownabbey,
Northern Ireland, BT36 4PP
PeoplePlus (Works) NI Limited*
Paragon Training (NI) Limited*
Registered office: 20 Stafford Street, Edinburgh, Scotland, EH3 7BD
Brightwork Limited*
Brightwork Specialist Recruitment Limited*
Registered office: Elgar House, Shrub Hill Road, Worcester, England,
WR4 9EE
Warwickshire and West Mercia Community Rehabilitation Company
Limited*
Mercia Community Action CIC*
Registered office: Southern Exchange House, 34 Earl Grey Street,
Edinburgh, EH3 9BN
PeoplePlus Scotland Limited*
Registered office: 3A Cleve Business Park, Monahan Road, Cork,
T12KWK1
Driver & Labour Recruit Limited*
Registered office: 34 Habarzel Street, Rarnat Hahayal, Tel Aviv, 69710,
Israel
Amin (A4e – Aman) Limited*
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Poland
Poland
Poland
Recruitment
Recruitment
Recruitment
100%
Republic of Ireland
Recruitment
100%
100%
Northern Ireland
Northern Ireland
Training
Training
100%
64%
Scotland
Scotland
Recruitment
Dormant
100%
100%
England and Wales
England and Wales
Welfare to Work
Welfare to Work
100%
Scotland
Dormant
100%
Republic of Ireland
Recruitment
100%
Israel
Dormant
Registered office: Weberstrasse 65, 45879 Gelsenkirchen, Germany
A4e Deutschland GmbH*
100%
Germany
Dormant
*
These companies are owned indirectly through other Group companies.
Staffline Group plc Annual Report 2017 69
14 Subsidiaries exempt from audit
The following UK subsidiaries will take advantage of the audit exemption set out within Section 479A of the Companies Act 2006 for the
year ending 31 December 2017:
Subsidiaries
A4e Enterprise Limited
Broomco (4198) Limited
Eos Works Group Limited
Eos Works Limited
Learning Plus System Limited
Network Projects Limited
Staffline Appointments Limited
Proportion of
ordinary share
capital held
Country of incorporation
Nature of business
100%
100%
100%
100%
100%
100%
100%
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Dormant
Intermediary holding
Intermediary holding
Dormant
Training
Dormant
Recruitment
The Directors of Staffline Group plc have confirmed that the Company will provide a financial guarantee under Section 479C of the
Companies Act 2006 in relation to the subsidiaries listed above. No liability is expected to arise from the giving of this obligation.
15 Property, plant and equipment
Gross carrying amount – Group
At 1 January 2016
Additions
Reclassification
Disposals
At 31 December 2016
Additions
Transfer to software intangible assets*
Disposals
At 31 December 2017
Depreciation
At 1 January 2016
Charged in the year – operating
Charged in the year – impairment**
At 31 December 2016
Charged in the year – operating
Disposals
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
Land and
buildings
£’m
Computer
equipment
£’m
Assets in
course of
construction
£’m
Fixtures
and
fittings
£’m
Motor
vehicles
£’m
3.6
2.6
(0.8)
(0.2)
5.2
–
–
–
5.2
1.3
0.4
–
1.7
0.4
–
2.1
3.1
3.5
6.9
1.7
–
–
8.6
2.5
(0.2)
(1.8)
9.1
3.0
1.7
1.3
6.0
1.7
(1.8)
5.9
3.2
2.6
0.7
(0.7)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3.8
–
0.8
–
4.6
0.2
–
(2.9)
1.9
1.4
1.0
0.3
2.7
0.7
(2.9)
0.5
1.4
1.9
0.1
–
–
–
0.1
–
–
–
0.1
0.1
–
–
0.1
–
–
0.1
–
–
Total
£’m
15.1
3.6
–
(0.2)
18.5
2.7
(0.2)
(4.7)
16.3
5.8
3.1
1.6
10.5
2.8
(4.7)
8.6
7.7
8.0
* Acquired software assets previously disclosed as Computer equipment were reclassified as Intangible software assets during 2017.
** The impairment charge of £1.6m in 2016 related to the reorganisation of the PeoplePlus division and the exiting of leased properties no longer required.
As at 31 December 2017, the Company had no property, plant and equipment assets (2016: none).
OverviewStrategic ReportCorporate GovernanceFinancial Statements
70
Notes to the financial statements Continued
For the year ended 31 December 2017
16 Trade and other receivables
Trade and other receivables
Amounts due from Group undertakings
Accrued income
2017
Group
£’m
95.9
–
11.7
107.6
2017
Company
£’m
0.5
63.6
–
64.1
2016
Group
£’m
91.2
–
11.9
103.1
2016
Company
£’m
0.2
29.8
–
30.0
Trade and other receivables are usually due within 30 days and do not bear any effective interest rate. All trade receivables are subject
to credit risk exposure. The Group does not identify specific concentrations of credit risk with regards to trade and other receivables as
the amounts recognised represent a large number of receivables from various customers.
Amounts due from Group undertakings are non-interest bearing, unsecured and repayable on demand.
The fair value of these short-term financial assets is not individually determined as the carrying amount is a reasonable approximation of
fair value.
Included in the trade and other receivables balance above is a bad debt provision of £0.1m (2016: £0.1m). Some of the trade receivables
are past due as at the reporting date. The age of financial assets past due but not impaired, is as follows:
Not more than three months
More than three months but no more than six months
More than six months
2017
£’m
10.7
1.6
0.1
12.4
2016
£’m
12.1
1.0
0.2
13.3
17 Retirement benefit net asset
One of the Group’s subsidiaries operates a defined benefit pension scheme for its staff. The scheme is closed to new entrants. The last
actuarial valuation of the scheme was at 30 May 2017. Given that the fair value of plan assets is only £9.8m (2016: £9.0m), only
significant disclosures are reported below.
The amounts recognised in the balance sheet are determined as follows:
Fair value of plan assets
Present value of funded obligations
Net asset in the balance sheet at 31 December
% funding ratio
Actuarial gains and (losses) during the year
The movement in the fair value of the plan assets over the year is as follows:
Balance at 1 January
Expected return – interest on assets
Contributions – employer and member
Benefits paid
Actuarial gain on asset return
Asset in the balance sheet at 31 December
2017
£’m
9.8
(8.4)
1.4
117%
0.2
2017
£’m
9.0
0.3
0.2
(0.1)
0.4
9.8
2016
£’m
9.0
(7.8)
1.2
115%
(1.1)
2016
£’m
8.3
0.3
0.3
(0.2)
0.3
9.0
Staffline Group plc Annual Report 2017 At 31 December 2017, the Scheme’s assets, valued at market value, were distributed as follows:
Bonds (58% of assets as at 31 December 2017)
Equities (38% of assets as at 31 December 2017)
Cash (4% of assets as at 31 December 2017)
Asset in the balance sheet at 31 December
71
2017
£’m
5.6
3.8
0.4
9.8
2016
£’m
5.3
3.2
0.5
9.0
All investments are managed by the investment advisers and Standard Life within the Standard Life ‘wrap investment’ portfolio where the
investments are held within Dimensional Funds at the year end. All funds are passively managed. The funds held by the Scheme are all
pooled investment vehicles and therefore the investment manager is responsible for appointing an independent custodian. The objective
of each of these funds is to match the investment return in a particular investment market subject to an acceptable degree of tracking-
error that is monitored by the Trustees.
The movement in the present value of defined benefit funding obligations over the year is as follows:
Balance at 1 January
Interest cost on liabilities
Service cost – current accrual cost
Benefits paid – net of member contributions
Actuarial loss on change in assumptions
Liability in the balance sheet at 31 December
2017
£’m
7.8
0.2
0.3
–
0.1
8.4
2016
£’m
5.9
0.2
0.2
(0.2)
1.7
7.8
Membership numbers (active 2017: 25; 2016: 26)
274
275
The liabilities have been calculated using the following principal actuarial assumptions:
Inflation rate (RPI)
Inflation rate (CPI)
Salary increase
Discount rate (derived from AA-rated corporate bonds yield curve) and expected rate of return
Future pension increases for leavers
2017
3.1%
2.1%
3.1%
2.5%
3.1%
2016
3.3%
2.5%
3.3%
2.9%
3.3%
Assumptions regarding future mortality experience are set based on actuarial advice in accordance with published statistics and
experience. Mortality assumptions are based on the following mortality tables:
• Pre-retirement mortality: 100% of SAPS “S2” Normal tables
• Post-retirement mortality: 100% of SAPS “S2” Normal tables
Future improvements in longevity are as based on the following:
• Pre-retirement mortality: CMI 2016 projections with a long-term trend of 0.0% per annum
• Post-retirement mortality: CMI 2016 projections with a long-term trend of 1.25% per annum
The mortality assumptions used were as follows:
Average expected future life at age 60 for a:
– male currently aged 60
– female currently aged 60
– male currently aged 40
– female currently aged 40
31 Dec 2017
years
31 Dec 2016
years
26.6
28.7
28.1
30.2
26.5
28.3
27.8
29.5
OverviewStrategic ReportCorporate GovernanceFinancial Statements 72
Notes to the financial statements Continued
For the year ended 31 December 2017
17 Retirement benefit net asset Continued
Members are assumed to retire at the earliest age where there would be no reduction. It is also assumed that members commute 75% of
the maximum HMRC allowance based on current commutation factors. There are £nil (2016: £nil) contributions unpaid at the year-end.
A charge of £0.3m (2016: £0.2m) is included within the statement of comprehensive income within administrative expenses, being
employers contributions to the scheme. A net actuarial gain, after deferred taxation, of £0.2m (2016: loss of £1.1m) is included within the
consolidated statement of changes in equity.
At 31 December 2017, the Company had no pension balances (2016: £nil).
18 Cash and cash equivalents
Cash and cash equivalents
Bank overdraft
Cash and cash equivalents per cash flow statement
2017
£’m
31.3
–
31.3
2016
£’m
19.7
–
19.7
Cash and cash equivalents consist of cash on hand and balances with banks only. At the year-end, £31.3m (2016: £19.7m) of cash on
hand and balances with banks were held by subsidiary undertakings, however this balance is available for use by the Group. £0.0m
(2016: £0.9m) of the year-end cash balance was held at the Bank of Ireland, outside of the Group overdraft facility with Lloyds Banking
Group and HSBC Bank. Long-term credit ratings for the three banks are currently as follows:
HSBC Bank plc
Lloyds Banking Group
Bank of Ireland
The Group’s banking facility headroom versus available bank facilities is as follows:
Cash at bank
Overdraft facility
Additional Revolving Credit Facility
Bank guarantee
Banking facility headroom
With the exception of £10,000, all of the bank guarantees as at 31 December 2016 expired during 2017.
As at 31 December 2017, the Company had cash balances of £nil (2016: £nil).
19 Trade and other payables
Trade and other payables
Accruals and deferred income
Amounts due to Group undertakings
Other taxation and social security
2017
Group
£’m
9.2
41.7
–
52.1
103.0
2017
Company
£’m
–
–
30.2
–
30.2
Fitch
AA–
A+
BBB–
2017
£’m
31.3
15.0
7.5
–
53.8
2016
Group
£’m
13.1
37.6
–
46.8
97.5
Standard
& Poors
AA–
BBB+
BBB
2016
£’m
19.7
15.0
7.5
(0.4)
41.8
2016
Company
£’m
–
0.1
7.8
–
7.9
The fair value of trade and other payables has not been separately disclosed as, due to their short duration, the Directors consider the
carrying amounts recognised in the statement of financial position to be a reasonable approximation of their fair value.
Amounts due to Group undertakings are non-interest bearing, unsecured and repayable on demand.
Staffline Group plc Annual Report 2017
20 Borrowings
Borrowings are repayable as follows:
In one year or less or on demand
In more than one year but not more than two years
In more than two years but not more than five years
Unamortised transaction costs
Total borrowings
Split:
Current liabilities:
Term loan
Unamortised transaction costs
Bank overdraft
Non-current liabilities:
Revolving credit facility
Term loan
Unamortised transaction costs
Total borrowings
Total borrowings excluding unamortised transaction costs
Less: Cash (note 18)
Net debt as disclosed in consolidated statement of cash flows
2017
Group
£’m
8.8
39.3
–
(0.3)
47.8
2017
Group
£’m
8.8
(0.2)
–
8.6
35.0
4.3
(0.1)
39.2
47.8
48.1
31.3
16.8
2017
Company
£’m
8.8
4.3
–
(0.3)
12.8
2017
Company
£’m
8.8
(0.2)
–
8.6
–
4.3
(0.1)
4.2
12.8
13.1
–
13.1
2016
Group
£’m
8.8
8.8
39.3
(0.5)
56.4
2016
Group
£’m
8.8
(0.2)
–
8.6
35.0
13.1
(0.3)
47.8
56.4
56.9
19.7
37.2
73
2016
Company
£’m
8.8
8.8
4.4
(0.6)
21.4
2016
Company
£’m
8.8
(0.2)
–
8.6
–
13.1
(0.3)
12.8
21.4
22.0
–
22.0
The term loan and Revolving Credit Facility (“RCF”) are secured by a debenture over all the assets of the Group.
A term loan of £35m was drawn down in June 2015 as part of the A4e acquisition. The loan is repayable quarterly and matures in 2019.
Interest accrues on the loan at between 1.4% and 2.4% plus LIBOR, depending upon the level of adjusted leverage as defined in the
banking covenants.
The Revolving Credit Facility of £35.0m is repayable in 2019 and interest accrues at the same rate as the term loan. In 2016, the Group
secured a further £7.5m of working capital facility, available to be drawn down with two days’ notice. This was not drawn down at either
year end and was not utilised at all during 2017.
21 Other liabilities including provisions
Due within one year (Current)
Deferred consideration
Cash-settled JSOP liability
Due after more than one year (Non-current)
Dilapidation provision (see below)
Cash-settled JSOP liability
2017
Group
£’m
2017
Company
£’m
2016
Group
£’m
2016
Company
£’m
1.8
3.3
5.1
2.5
3.2
5.7
–
3.3
3.3
–
3.2
3.2
0.5
–
0.5
3.0
3.2
6.2
–
–
–
–
3.2
3.2
Of the JSOP liability, half is due to be settled in July 2018, with the remaining balance payable in July 2019.
OverviewStrategic ReportCorporate GovernanceFinancial Statements 74
Notes to the financial statements Continued
For the year ended 31 December 2017
21 Other liabilities including provisions Continued
Dilapidation provisions
At 1 January
Additions to the income statement
Amount utilised
Acquired on business combinations
Unused amounts reversed to the income statement
At 31 December 2017
2017
Group
£’m
3.0
0.9
(1.7)
0.3
–
2.5
2016
Group
£’m
3.5
–
(0.4)
–
(0.1)
3.0
The dilapidations provision covers all of the Group’s leased property estate. The provision is determined based on an independent
valuation of the estimated total cost payable on expiry of the respective leases. The timing and value of the costs are uncertain due to
exit date and the final liability will be subject to negotiation.
As at 31 December 2017, the Company had no dilapidation provisions (2016: £nil).
22 Deferred taxation
Deferred taxation assets
Deferred taxation liabilities
2017
Group
£’m
0.5
2.7
2017
Company
£’m
–
–
2016
Group
£’m
0.9
3.5
2016
Company
£’m
–
–
The table below shows the movement in net deferred taxation during the year.
Deferred tax assets/(liabilities)
Property, plant and equipment temporary timing differences
Acquired intangible assets
Retirement benefit asset
Share-based payment liability
Recognised as:
Deferred tax asset
Deferred tax liability
Recognised in
comprehensive
income – current
year
£’m
Recognised in
comprehensive
income – prior
year
£’m
1 January
2017
£’m
0.8
(3.3)
(0.2)
0.1
(2.6)
0.9
(3.5)
(2.6)
(0.3)
2.0
–
(0.1)
1.6
(0.4)
2.0
1.6
–
(0.4)
–
–
(0.4)
–
(0.4)
(0.4)
Others
£’m
–
(0.8)
–
–
(0.8)
–
(0.8)
(0.8)
31 December
2017
£’m
0.5
(2.5)
(0.2)
–
(2.2)
0.5
(2.7)
(2.2)
The current year credit of £1.6m includes a £0.3m credit relating to a change in the deferred tax rate from 19.0% in 2016 to 17.0% in 2017.
“Others” represent the £0.8m effect of intangibles acquired relating to Brightwork and Oak Recruitment this year.
There are no material deferred tax assets that have not been recognised (2016: nil).
As at 31 December 2017, the Company has deferred tax balances of £nil (2016: £nil).
Staffline Group plc Annual Report 2017 75
2017
£’m
3.0
2.8
2016
£’m
3.0
2.8
2017
Number
2016
Number
27,749,389
100,000
27,849,389
2,150,611
27,749,389
–
27,749,389
2,250,611
30,000,000
30,000,000
23 Share capital
Authorised
30,000,000 (2016: 30,000,000) ordinary 10p shares
Allotted and issued
27,849,389 (2016: 27,749,389) ordinary 10p shares
Shares issued and fully paid at the beginning of the year
Shares issued during the year
Shares issued and fully paid at the end of the year
Shares authorised but unissued
Total equity shares authorised at end of the year
All ordinary shares have the same rights and there are no restrictions on the distribution of dividends or repayment of capital with the
exception of the 2,220,400 shares (31 December 2016: 2,220,400 shares) held at 31 December 2017 by the Employee Benefit Trust where
the right to dividends has been waived.
On 27 January 2017, the Company issued 100,000 new ordinary shares of 10p each in the capital of the Company following an exercise
of share options by Diane Martyn, Group Managing Director, at a price of 348.6 pence per ordinary share.
24 Related party transactions
The only related parties are the Group’s Directors, key management personnel and Group undertakings. Transactions with wholly owned
Group entities are exempt from disclosure.
Transactions with Group Directors
The Group Directors’ personal remuneration includes the following expenses:
Short-term employee benefits:
Salaries and fees (inc. car allowance)
Bonus – unpaid at year end
Benefits in kind
Compensation for loss of office
Social security costs
Pension contributions (inc. pension allowance)
Share based employee remuneration charge/(credit)
2017
£’000
1,021
422
5
–
130
85
2,052
3,715
2016
£’000
779
135
4
19
91
59
(832)
255
On 27 January 2017, the Company issued 100,000 new ordinary shares of 10p each in the capital of the Company (“the New Shares”)
following an exercise of share options by Diane Martyn, Group Managing Director, at a price of 348.6 pence per ordinary share. On
27 January 2017, Diane Martyn sold 100,000 ordinary shares of 10p each in the capital of the Company at an average price of 1,032.5
pence per ordinary share.
On 14 March 2017, Andy Hogarth, Chief Executive Officer, sold 55,000 ordinary shares of 10p each in the capital of the Company at an
average price of 1,150.0 pence per ordinary share.
Excluding interests in share options (Andy Hogarth and Chris Pullen, Chief Financial Officer) and Joint Share Ownership Plans (Andy
Hogarth and Diane Martyn), which are fully disclosed in the Remuneration Report on pages 35 to 37, the beneficial interests of the
Directors in the shares of the Company are fully disclosed in the Report of the Directors on page 38.
OverviewStrategic ReportCorporate GovernanceFinancial Statements 76
Notes to the financial statements Continued
For the year ended 31 December 2017
24 Related party transactions Continued
Transactions with Key Management Personnel
The Group Key Management Personnel’s remuneration, which includes the Group Directors’ remuneration disclosed above, includes the
following expenses:
2017
£’000
2016
£’000
Short-term employee benefits:
Salaries and fees (inc. car allowance)
Bonus – unpaid at year end
Benefits in kind
Social security costs
Pension contributions
Compensation payments on resignation
Share-based employee remuneration charge/(credit)
1,765
602
14
224
128
–
3,350
6,083
1,854
411
13
262
121
300
(2,982)
(21)
In addition to the above, the Group spent £23,000 (2016: £25,600) in accommodation expenses at Hogarth’s Hotel, which is owned by a
person connected to the Group Chief Executive. £nil remains outstanding at the year end (2016: £200).
25 Operating leases
The Group’s aggregate minimum operating lease payments for the full remaining lives of the leases are as follows:
In one year or less
Between one and five years
In five years or more
2017
Land and
buildings
£’m
2.9
4.5
1.4
8.8
2016
Land and
buildings
£’m
3.5
5.7
1.9
11.1
Lease payments recognised as an expense during the year ended 31 December 2017 amounted to £5.6m (2016: £7.6m). Operating lease
agreements do not contain any contingent rent clauses. None of the operating lease agreements contain renewal or purchase options or
escalation clauses or any restrictions regarding dividends, future leasing or additional debt. No sub-lease income is due as all assets
held under lease agreements are used exclusively by the Group.
26 Contingencies
A cross guarantee exists between all companies in the Group for all amounts owing to Lloyds Banking Group and HSBC Bank. The Group
amounts owing to Lloyds Banking Group and HSBC Bank at the 2017 financial year end are £16.8m (2016: £38.1m).
The Company will provide a financial guarantee under Section 479C of the Companies Act 2006 in relation to the subsidiaries listed in
note 14, which will take advantage of the audit exemption set out within Section 479A of the Companies Act 2006.
The Group has no other material contingent assets or liabilities at either 31 December 2017 or 31 December 2016.
27 Capital commitments
The Group had no material capital commitments at either 31 December 2017 or 31 December 2016.
Staffline Group plc Annual Report 2017 77
28 Risk management objectives and policies
The Group is exposed to a variety of financial risks through its use of financial instruments which result from both its operating and
investing activities. The Group’s risk management is co-ordinated at its headquarters, in close co-operation with the Board of Directors.
The Group does not actively engage in the trading of financial assets for speculative purposes. The most significant financial risks to
which the Group is exposed are described below.
Credit risk
Generally, the Group’s maximum exposure to credit risk is limited to the carrying amount of the financial assets, recognised at the
balance sheet date, as summarised below:
Trade and other receivables (note 16)
Cash and cash equivalents (note 18)
Accrued income (note 16)
2017
Loans and
receivables and
balance sheet
totals
£’m
2016
Loans and
receivables and
balance sheet
totals
£’m
95.9
31.3
11.7
138.9
91.2
19.7
11.9
122.8
Credit risk is only disclosed in circumstances where the maximum potential loss differs significantly from the financial asset’s
carrying amount.
The Group’s trade and other receivables are actively monitored to avoid significant concentrations of credit risk. Details in respect of
trade receivables at 31 December 2017 are provided in note 16. Substantially all of the trade within the PeoplePlus division is with local
and central government, therefore the credit risk with these customers is considered low.
The Group has adopted a policy of carefully monitoring all customers, especially those who lack an appropriate credit history.
Liquidity risk
The Group seeks to manage financial risks to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash assets
safely and profitably. Short-term flexibility is achieved by the use of a bank overdraft facility of up to £15.0m (31 December 2016: £15.0m)
and the use of a working capital facility of £7.5m (31 December 2016: £7.5m) that was secured during 2016. The working capital facility
was not utilised during 2017.
Interest rate risk
All financial liabilities of the Group are subject to floating interest rates. Competitive rates have been renegotiated with the Group’s
bankers and the rate paid on both the term loan and Revolving Credit Facility (“RCF”) has been set at 1.4% above LIBOR. The following
table illustrates the sensitivity of the net result for the year and equity to a reasonably possible change in interest rates of +/– one
percentage point with effect from the beginning of the year.
(Decrease)/increase in net result and equity £’m
2017
+1%
(0.5)
2017
–1%
0.5
2016
+1%
(0.6)
2016
–1%
0.6
Foreign currency sensitivity
Most of the Group’s transactions are carried out in sterling. Exposure to currency exchange rates arises from the Group’s overseas sales
and purchases which are predominantly denominated in Polish zloty and the euro (Republic of Ireland). These sales and purchases are
immaterial to the Group’s total sales and purchases. Due to the highly immaterial nature of these foreign currency transactions, the
Group has not entered into any foreign currency risk mitigation strategies to date. This will be kept under review as overseas business
continues to grow.
OverviewStrategic ReportCorporate GovernanceFinancial Statements 78
Notes to the financial statements Continued
For the year ended 31 December 2017
28 Risk management objectives and policies Continued
Financial liabilities
The Group’s liabilities are classified as follows:
2017
Financial liabilities
at fair value
through profit
or loss
£’m
2017
Other
financial
liabilities at
amortised cost
£’m
2017
Liabilities not
within the
scope of
IAS 39
£’m
Term loan
Revolving Credit Facility
Trade and other payables
Taxation and social security
Accruals
Deferred income
Deferred consideration
Provisions
Other liabilities – JSOP
Corporation tax
Total
–
–
–
–
–
–
–
–
–
–
–
13.1
35.0
9.2
52.1
39.6
–
–
–
–
–
–
–
–
–
–
2.1
1.8
2.5
6.5
3.4
149.0
16.3
165.3
It is considered that the fair value of the Group’s financial assets and liabilities equal the book value.
Term loan
Revolving Credit Facility
Trade and other payables
Taxation and social security
Accruals
Deferred consideration
Provisions
Other liabilities – JSOP
Corporation tax
Total
2016
Financial liabilities
at fair value
through profit
or loss
£’m
2016
Other
financial
liabilities at
amortised cost
£’m
2016
Liabilities not
within the
scope of
IAS 39
£’m
–
–
–
–
–
–
–
–
–
–
21.9
35.0
13.1
46.8
37.6
–
–
–
–
154.4
–
–
–
–
–
0.5
3.0
3.2
2.5
9.2
2016
Balance
sheet
total
£’m
21.9
35.0
13.1
46.8
37.6
0.5
3.0
3.2
2.5
163.6
Fair value represents amounts at which an asset could be exchanged or a liability settled on an arm’s length basis.
Financial assets and financial liabilities measured at fair value are grouped into three levels of fair value hierarchy. This grouping is
determined based on the lowest level of significant inputs used in the fair value measurement, as follows:
•
•
•
level 1 – quoted prices in active markets for identical assets and liabilities;
level 2 – inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly or indirectly;
and
level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The Group has no financial assets or liabilities in any of the above classifications.
2017
Balance
sheet
total
£’m
13.1
35.0
9.2
52.1
39.6
2.1
1.8
2.5
6.5
3.4
Staffline Group plc Annual Report 2017 Maturity of financial liabilities
The analysis of the maturity of financial liabilities within the scope of IAS 39 at 31 December 2017 is as follows:
Term loan
Revolving Credit Facility
Trade and other payables
Taxation and social security
Accruals
Total
2017
Less than
one year
£’m
8.8
–
9.2
52.1
39.6
109.7
2017
One to
five years
£’m
2017
More than
five years
£’m
4.3
35.0
–
–
–
39.3
–
–
–
–
–
–
2017
Total
£’m
13.1
35.0
9.2
52.1
39.6
2016
Less than
one year
£’m
8.8
–
13.1
46.8
37.6
149.0
106.3
2016
One to
five years
£’m
2016
More than
five years
£’m
13.1
35.0
–
–
–
48.1
–
–
–
–
–
–
The analysis of the maturity of contractual undiscounted financial liabilities (including interest) at 31 December 2017 is as follows:
Term loan
Revolving credit facility
Trade and other payables
Taxation and social security
Accruals
Total
2017
Less than
one year
£’m
9.1
0.7
9.2
52.1
39.6
110.7
2017
One to
five years
£’m
2017
More than
five years
£’m
4.5
35.5
–
–
–
40.0
–
–
–
–
–
–
2017
Total
£’m
13.6
36.2
9.2
52.1
39.6
2016
Less than
one year
£’m
9.1
0.7
13.1
46.8
37.6
150.7
107.3
29 Cash flows from operating activities – Consolidated
Profit before taxation (continuing operations)
Adjustments for:
Operating loss on discontinued operations
Finance costs
Depreciation, loss on disposal and amortisation – underlying
Depreciation, loss on disposal and amortisation – non-underlying
Operating profit before changes in working capital and share options
Change in trade and other receivables
Change in trade, other payables and provisions
Impact of foreign exchange loss on operating activities
Cash generated from operations
Employee cash-settled share options (non-cash charge/(credit))
Employee equity-settled share options
Net cash inflow from operating activities
2016
One to
five years
£’m
2016
More than
five years
£’m
13.3
35.5
–
–
–
48.8
–
–
–
–
–
–
2017
£’m
24.1
–
2.8
4.4
8.8
40.1
3.5
1.0
(0.1)
44.5
3.3
0.1
47.9
79
2016
Total
£’m
21.9
35.0
13.1
46.8
37.6
154.4
2016
Total
£’m
22.4
36.2
13.1
46.8
37.6
156.1
2016
£’m
18.9
(0.2)
3.3
5.1
14.0
41.1
13.2
(4.5)
–
49.8
(2.9)
–
46.9
OverviewStrategic ReportCorporate GovernanceFinancial Statements 80
Notes to the financial statements Continued
For the year ended 31 December 2017
29 Cash flows from operating activities – Consolidated Continued
Movement in net debt
Net debt at 1 January 2017 (excluding transaction fees)
Unwinding of discount on loan notes
Loan repayments
Change in cash and cash equivalents
Net debt at 31 December 2017 (excluding transaction fees)
Represented by:
Cash and cash equivalents (note 18)
Current borrowings (note 20)
Non-current borrowings (note 20)
Net debt including transaction fees
Transaction fees (unamortised balance)
Net debt at 31 December 2017 (excluding transaction fees)
2017
£’m
(37.2)
–
8.8
11.6
(16.8)
£’m
31.3
(8.6)
(39.2)
(16.5)
(0.3)
(16.8)
2016
£’m
(63.7)
(0.1)
11.9
14.7
(37.2)
£’m
19.7
(8.6)
(47.8)
(36.7)
(0.5)
(37.2)
Non-cash items included above represent employees cash-settled share options, the unwinding of the discount on loan notes and the
movement of transaction costs in relation to debt issue fees.
30 Acquisition of businesses – cash paid, net of cash acquired
Cashflows in relation to the acquisition of Brightwork Limited and Driver & Labour Recruit Limited are as follows:
Total Consideration (note 11)
Consideration deferred (note 11)
Cash acquired (note 11)
Loans and overdrafts acquired (note 11)
Acquisition of businesses
Brightwork
£’m
5.2
(1.6)
(1.8)
5.5
7.3
Driver &
Labour
Recruit
£’m
0.6
(0.1)
(0.1)
0.4
0.8
2017
£’m
5.8
(1.7)
(1.9)
5.9
8.1
2016
£’m
–
–
–
–
–
31 Capital management policies and procedures
The Board’s current priorities for the Group’s free cash flow are to fund Group development, maintain the strength of the statement of
financial position and to support a sustainable dividend policy. The Group’s overall strategy remains unchanged from last year in that it
manages its capital to ensure that the Group will be able to continue as a going concern through the economic cycle.
The capital structure of the Group consists of net debt, which is represented by cash and cash equivalents (note 18), bank loans,
overdrafts and revolving credit facilities (note 20) and equity attributable to equity holders of the parent, comprising issued share
capital, reserves and retained earnings as disclosed in the consolidated statement of changes in equity.
The only restrictions on the Group’s capital relates to the covenants attached to the debt facilities.
During the year, there was headroom against each of the four banking covenants below at each of the four quarter ends when
covenants are formally assessed:
1. Cash flow cover – being the ratio of cash generated to debt servicing costs.
2. Interest cover – being the ratio of EBITDA excluding share based payment charges to interest costs.
3. Adjusted leverage – being the ratio of net debt to EBITDA excluding share-based payment charges (as adjusted for acquisitions).
4. Asset cover – being the ratio of trade debtors to net debt.
The Directors have reviewed reasonable possible outcomes within the next financial year, in accordance with IAS 1 paragraph 129, and
have concluded that the outcomes which were reasonably possible would not involve either a covenant or banking facility breach during
2018. Cash flows are monitored on a daily basis against forecasts that are updated each month, to ensure that the Group continues to
operate within its banking facilities.
Staffline Group plc Annual Report 2017 81
% annual
compound
growth
23%
32%
25%
28%
Unaudited five-year summary of financial data
Weeks
Comprehensive income
Turnover
Underlying operating profit
% margin
Reported operating profit
Net profit after taxation
Underlying earnings per share (diluted)
Declared dividend per share
Dividend cover vs underlying diluted EPS
Financial position
Goodwill
Intangible assets
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Borrowings (excl. deal fees)
Deferred tax net (liability)/asset
Other (net liabilities)
Net assets
Net (debt)/cash excl. deal fees
Goodwill, intangibles
Other net assets
Cash flows
Underlying operating profit
Non–underlying cash costs
Depreciation, amortisation
Working capital movements
Capital expenditure, inc. software
Taxation paid (net)
Free cash from operations
Dividends and interest paid
Business acquisitions inc. debt acquired
Issue of share capital, share sales
Others
Reduction/(increase) in net debt
Financial reporting years ended 31 December £’m
2017
52
957.8
39.1
4.1%
26.9
18.4
112.6
26.7p
4.2x
94.2
20.8
7.7
107.6
31.3
(103.0)
(48.1)
(2.3)
(12.4)
95.8
(16.8)
115.0
(2.4)
39.1
–
4.4
4.4
(3.8)
(6.2)
37.9
(9.3)
(8.5)
0.3
–
20.4
2016
52
882.4
40.0
4.5%
22.2
14.7
114.0p
25.8p
4.4x
91.6
25.8
8.0
103.1
19.7
(97.5)
(56.9)
(2.6)
(7.5)
83.7
(37.2)
117.4
3.5
40.0
(6.6)
4.9
8.7
(6.9)
(4.0)
36.1
(8.9)
(1.9)
1.5
(0.3)
26.5
2015
52
702.2
30.3
4.3%
7.5
2.8
92.4p
20.0p
4.6x
91.5
36.7
9.3
116.8
5.0
(101.3)
(68.7)
(5.1)
(8.6)
73.2
(63.7)
128.2
8.7
30.3
(4.1)
3.6
(14.0)
(4.4)
(5.0)
6.4
(5.8)
(45.4)
–
(1.1)
(45.9)
2014
53
503.2
19.4
3.9%
11.2
6.8
59.7p
13.5p
4.4x
69.7
12.0
4.9
76.4
18.4
(69.5)
(36.2)
(1.9)
(8.9)
64.5
(17.8)
81.7
0.6
19.4
(0.7)
2.0
(3.1)
(2.7)
(2.5)
12.4
(3.3)
(46.8)
15.4
(0.4)
(22.7)
2013
52
416.2
12.8
3.1%
8.9
7.4
45.8p
10.0p
4.6x
31.0
4.0
2.1
63.1
12.5
(56.0)
(7.6)
0.4
(3.7)
45.8
4.9
35.0
5.9
12.8
–
1.0
6.2
(2.8)
(3.1)
14.1
(2.4)
(2.8)
0.5
0.1
9.5
OverviewStrategic ReportCorporate GovernanceFinancial Statements 82
Company details
Company registration number:
05268636
Registered office:
19–20 The Triangle
NG2 Business Park
Nottingham
NG2 1AE
Directors:
Ed Barker (Non-Executive Director)
John Crabtree OBE (Non-Executive Chairman)
Andy Hogarth (Group Chief Executive)
Tracy Lewis (Non-Executive Director)
Diane Martyn (Group Managing Director)
Chris Pullen (Chief Financial Officer)
Secretary:
Paul Collins
Nominated advisor and joint broker:
Liberum Capital
Ropemaker Place
25 Ropemaker Street
London
EC2Y 9LY
Joint broker:
Berenberg
60 Threadneedle Street
London
EC2R 8HP
Registrars:
Computershare Investor Services plc
PO Box 859
The Pavilions
Bridgewater Road
Bristol
BS99 1XZ
Bankers:
Lloyds Bank plc
33 Old Broad Street
London
BX2 1LB
HSBC Bank plc
Grove Park
Penman Way
Enderby
LE19 1SY
Solicitors:
Browne Jacobson LLP
Mowbray House
Castle Meadow Road
Nottingham
NG2 1BJ
Gowlings WLG (UK) LLP
2 Snow Hill
Birmingham
B4 6WR
Statutory auditors:
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
19 Cornwall Street
Birmingham
B3 2DT
Financial and trade public relations:
Buchanan Communications
107 Cheapside
London EC2V 6DN
Staffline Group plc Annual Report 2017 Notes
83
OverviewStrategic ReportCorporate GovernanceFinancial Statements 84
Notes
Staffline Group plc Annual Report 2017 S
t
a
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i
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e
G
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o
u
p
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
7
Registered office
19 – 20 The Triangle
NG2 Business Park
Nottingham, NG2 1AE