What is CredTech ?
by Rory Traynor
Like most sectors, recruitment has been transformed by the digital revolution with some winners and some losers. While faster communication has created new opportunities, the rise of online job boards has put increased pressure on a crowded market.
In this article, we’re going to analyse the financial position of two large staffing companies that are on very different trajectories – Staffline and Impellam.
Staffline
Staffline provides outsourcing to government and commercial customers in the UK and Ireland. According to the company website, it provides up to 52,000 workers per day to 1,500 clients, as well as offering a wide range of employability services to central and local government.
The company has issued several profit warnings in the last year, as well as having suffered several compliance issues. These factors have resulted in a rating of one red flag, meaning the business presents an elevated credit risk.
A slump in the British job market during 2019 saw Staffline cut its full-year profit forecast for the third time, causing its share value to drop 29% to its lowest point in ten years.
Worse still, the company has announced that it made accounting errors to the tune of £4 million in its 2018 results and has recently been subject to an HMRC investigation over non-compliance with national minimum wage legislation.
The company is also highly geared, and with its profits declining it could now risk breaching its borrowing covenant if profits drop below the levels agreed with lenders. If this happens, the company will have to seek a Company Voluntary Arrangement (CVA) or could be forced into administration, and parts could be sold off.
The latter is the worst-case scenario for trade creditors, who will find themselves at the back of the queue when it comes to being repaid.
Impellam
Impellam is a global staffing, talent acquisition and managed solutions provider. The company has grown through acquisition and, therefore, consists of a large number of smaller companies. It is now one of the largest staffing agencies in the country.
The company provides a wide range of professionals and has particular expertise in the education and healthcare sectors.
However, it has not all been plain sailing for the group. Early last year, Investor Chronicle reported that gross profits at Impellam had dropped across three of its four divisions. The publication pointed to the same factors that have affected Staffline as the cause of these woes.
But while Impellam may have some troubles, it does remain on a solid financial footing and is rated gold by Red Flag Alert – this means that the company presents a very low credit risk.
The company’s revenues, while modest, are growing. It continues to be profitable, and it has good liquidity that is strengthening.
Gearing may be higher than the company would like, but there are signs that this is improving. The company also has negative net worth after the deduction of intangibles – however, net worth is also going in the right direction.
Impellam’s financial performance could be linked to its group structure. The company has made at least seven new acquisitions since 2014, and this may go some way towards explaining its high costs and uninspiring financial performance.
Also, in mid-2019, the group restructured the business around four key segments: global managed services, global specialist staffing, regional specialist staffing, and healthcare. It is hoped that the new structure will support an integrated business model, drive increased collaboration and reduce duplication and costs across the group.
Good Decision-Making and Diversification: a Recipe for Success?
It’s difficult to overstate just how challenging the last decade has been for the traditional recruitment and staffing sector.
The two companies analysed in this article have both been impacted by similar market factors – Brexit uncertainty and online competition.
However, while both companies operate in the same environment, their fortunes have been very different. This is partly due to the business decisions made by management and their company structures.
Companies that proactively evolve to meet new challenges often perform well. Impellam’s diverse range of acquisitions and recent restructure have enabled them to react flexibly to difficult market conditions.
Take Your Risk Management to the Next Level
Red Flag Alert is a business intelligence tool that uses multiple sources to gather 114 data points on each of the UK’s 6.5 million businesses.
Our credit risk solution equips your finance and credit teams with real-time data on every UK business, enabling them to manage risk proactively.
Whether you’re monitoring a key supplier or an acquisition target, detailed financial information enables you to make better business decisions.
- 6.5m+ UK businesses
- 50,000+ new businesses every month
- 100,000+ updates every day
- 20m+ key decision-makers
- 100+ data points on every business
- 7 financial health ratings
- 4bn+ of bad debt
Learn more about how Red Flag Alert helps you protect your business from financial risk and comply with regulations, why not Try Red Flag Alert today?
