REPORT ON STAFFLINE PRESENTATION AT DIDMARTON 27TH September 2011
Staffline provides unskilled or semi skilled staff for basic jobs in food production and distribution, and runs a call centre for recruitment. Their chief executive, Andy Hogarth, told us that they have 500 permanent employees – of whom 33-35 are at head office – but their total payroll is 25-30,000 as they employ temporary staff on behalf of clients.
The company is no longer focused on high street branches as it has found onsite branches to be more flexible and responsive and they now provide 89% of revenue. A branch at a client site is cheap to set up, and very flexible and responsive making it easy for clients to staff up temporarily when, for example, a supermarket has a BOGOFF offer.
Andy Hogarth believes that they key skill in recruitment is volume, which means finding the right type of person for the job. A production line that needs 20 people is no good with 19 and it is surprisingly hard not to have one person missing. Both client and workforce need careful management and the workforce needs motivating and treating with respect which not all employment agencies are good at. Currently c.50% of employees are East European although this percentage has been declining.
The company’s biggest client is a supermarket who originally said they would never have more than 20% temporary distribution staff. They now have 40% and the target is now 50%. For a number of clients client, they provide the staff to run the whole factory. The efficiencies that Staffline brings generally result in cost reductions for their clients and they have just signed their first contract which has a performance related element to reflect this.
The business had a good recession as it is very defensive with 52% in food. They work for virtually every meat processing company and all the big four supermarkets – Andy Hogarth said they probably killed the beef that we ate at lunchtime. However, margins are under pressure since food companies are unable to pass rising input prices on to their supermarket customers quickly enough.
In a client led move, Staffline opened in Poland this year which initially lost money but is now in profit. They hope to take on all this client’s east European work but will only do so if the operations becomes profitable quickly.
A tight grip is kept on spending with a lean head office, negligible capex and most branches on client sites. Working capital is especially carefully managed because every extra £1m in revenue immediately requires an extra £40,000 in working capital. Consequently, it is an iron rule that on average no credit is extended on beyond 30 days, even if this means losing clients.
Staffline is also a key provider of the government ‘Welfare to Work’ initiative, they have the contract for the west Midlands and have recently acquired the company that has the contracts for the north east and north west. Payment is by results and does nor kick in until the individual has been in work for 26 weeks, then continues for the next 13 months. There will be no profit this year or next because payment is in arrears but the results so far are outstanding. Internal targets are for 85% of long term unemployed and invalidity claimants to go on the programme, 65% of those to be in work for 26 weeks, and 70% to still be in work 13 months later. Those targets are being achieved up to 26 weeks, it is too early to say beyond that, but this means that more than 50% of benefit claimants have had their lives turned around. And there is incredible synergy for the company who are paid by the government to run the programme and paid by employers to provide staff. Andy quoted a canteen where every member of staff is ex-benefits except the head chef and the atmosphere is really good and self-policing.
On acquisitions, Staffline are consolidators and buy mom and pop businesses, take out costs by centralizing regulatory, accounting etc functions. They like small acquisitions c.£20m as they are low risk but worthwhile. Their culture is ethical because it’s ‘important to sleep at night’ and it is difficult to absorb an acquisition of more than c.30 people without endangering the culture.
The management structure is flat with 4 board directors and 5 sub directors and the company is ‘growing like Topsy’. They only have 5% of the outsourced staff market do there is plenty to go for.
The new Agency Workers Regulations will, on balance, be good for Staffline because they are a big employer and can cope with the problem of offering every worker at least one shift a week by averaging across the workforce. Many of their competitors don’t know what to do so Staffline have seen a big increase in work.
At the interim stage, revenue was up 45% on the previous year and basic eps up 39%. The outlook is for more of the same. At flotation, their target was to treble sales and pretax profits and they have achieved this. Now they intend to ‘treble the treble’ and the target is £360m revenue and £12m pretax profit in 2013. The staff have an incentive scheme that pays out if they do better than this. With lots of business around
