Milamber Ventures Plc - Market Update and Opportunity
London, February 27
27 February 2019
Milamber Ventures Plc
("Milamber" or "the Company")
Market Update and Opportunity
Following the recent announcement of the acquisition of Astara Training Limited ("Astara"), Milamber Ventures plc (NEX: MLVP) is delighted to provide an update to shareholders on the Market Conditions and Opportunity available to the Company.
Andy Hasoon, Executive Chairman of Milamber, commented,
"The "Vocational" or "Apprentice" training industry is going through a significant amount of change and Milamber is already being classified as a "Change Agent".
We define "Vocational Training" as occupational skills based education to prepare people for a craft, trade, a specific job or profession.
There have been several articles in the press recently, including the Financial Times this February who reported that a Whitehall department was forced to cease its own government funded apprentices, following a significant budget reduction of the programme by civil servants in the overseeing agency, resulting in the withdrawal of the training provider.
The Financial Times went onto to report that the scheme's administrators had admitted they will fall well short of creating three million apprenticeships by 2020; and that this is a blow to the credibility of the two year old scheme which has been criticised by employers for being too restrictive.
Official figures reported in December 2018 show that there were only 375,800 apprenticeship starts reported for the 2017-2018 academic year compared with 491,300 in the 2016/2017 period a significant reduction of 24%. This means that the total number of apprenticeships is declining not increasing - 912,000 (2016/2017) to 814,800 (2017/2018) apprenticeships in England - and overall fall well short of the 2020 target of 3m.
Change takes time. It can take 5-10 years to change a large organisation, let alone circa 2,500 approved RoATP training organisations overseen by a government agency.
Approved training companies are listed on the UK Government Register of approved Apprentice Training Providers, which is overseen by the Education Skills Funding Agency (ESFA).
During our research and 'Due Diligence' process to find potential acquisition targets Milamber identified a number of issues that that would need to be addressed and that could only be done with the assistance of the ESFA.
We notified the ESFA that we would be acquiring multiple UK Government Register Apprentice Training Providers which in the industry are called RoATP's via Milamber's "Buy and Build" strategy.
In July 2018 Milamber escalated its communications with the ESFA to the highest levels, raising these various issues directly with the CEO of the ESFA who nominated people to discuss these issues.
We have been working on various initiatives since then as Milamber executes its "Buy and Build" strategy.
Furthermore, Milamber is conducting due diligence on a number of other potential RoATP registered acquisitions so that we can consolidate them through Milamber's "Buy and Build" strategy as the market is highly fragmented and needs consolidation to improve the quality and effectiveness for the learners that are funded by the Apprenticeship Levy and other funding programmes like Adult Education Budget (AEB).
It is also essential for UK PLC to have a highly skilled vocationally educated talent pool to meet the skills shortages we already have in the UK today. We have to educate employers how the Apprenticeship Levy works and be prepared to adapt the system so it is not seen as being restrictive but supportive of training our next generation of talent.
Most importantly if the UK training sector is to secure private investment in Vocational training and to alleviate the skills shortage that we have in key sectors like; Finance and Business, Health and Social Care, Information Technology and Legal services. It is therefore, imperative for the UK to invest in these training companies so we are competitive in a post Brexit environment.
We must modernise and fix what many in the industry admit privately is a broken business and funding model.
Milamber is trying to do just that."
A detailed market overview and market opportunity report on the vocational training market in the UK with explanations on the Apprentice Levy are available for download on www.Milamber.co.uk/media
Milamber Ventures Plc
T: 07768 875 681
Leander (Financial PR)
T: 07795 168 157
(A copy of this report with original pictorial charts can be found at http://www.milamber.co.uk/media/)
UK MARKET OPPORTUNITY
The UK opportunity for education and vocational training addresses a market worth c. £110bn comprising:
Education Market Overview: There are over 30,000 training providers in the UK, in addition 130 Universities employing 419,710 staff, 309 Further Education Colleges and 29,083 schools: 20,925 Primary schools employing 542,918 with a budget of £34bn; 4,168 Secondary employing 705,236 with a budget of £48bn; 2,381 Independent and 1,609 special schools.
Apprenticeship training, with 912,200 persons currently engaged in apprenticeship schemes and a £2.8bn government annual budget;
An example of a major area that has significant skills shortage and need for training is the social care sector containing 2,900 Care Home providers, 21,500 nursing and residential care homes and 460,186 beds, predicted to rise by 71,000 by 2025 due to demographics and longevity.
With unemployment at a 12-year low (4.0%, June-August 2018 ONS data) and 32.386m in employment, demand for training and professional qualification is high. The Education sector leads in ranking Vocational Training as a "Significant" hiring factor, at 77%, followed by Business at 74% and Health & Social Care at 58% (DoE, 2016).
UK APPRENTICESHIP MARKET SUMMARY
The UK apprentice training market is particularly attractive and a focus for Milamber's acquisition strategy. The latest government initiative, introduced in May 2017, is the Apprenticeship Levy. This has £2.8bn of annual government funding and is designed to encourage and enable employers to take on apprentices based on a mandatory levy of 0.5% of wage costs for companies with a bill of £3.0m.
The July 2018 House of Commons survey notes that in 2016/17 there were 912,200 persons engaged in the scheme, although apprenticeship starts (491,300) were down 3.6% YoY. This replaced the old 'Framework' system in which the government funded all costs for 16-18 year-olds, half for 19-23 year-olds and up to half for those aged 24 and above.
Four sectors account for 86% of apprenticeships - Health/Care Services, Business Administration/Law and Engineering/Manufacturing.
In the Levy scheme the government typically funds 90% of the costs of training an apprentice receiving on average £170/week.
APPRENTICESHIP LEVY ISSUES
Milamber notes surveys such as Evolve Learning Group's highlight three key factors as to why the vocational industry is not growing as fast as government forecasts: structural barriers, opposition to training ethos and lack of awareness of Levy scheme opportunities.
The other material issues raised are focused on systems that are still analogue, the vast volume of 'paperwork' needed to be provided per learner by the training companies, the importance of learner "Data", the lack of using digital learning techniques to make learning engaging to improve learner recall and retention rates, and fixing the "Assessor" business model.
The education and vocational training sector is highly fragmented regionally making it a primary target for consolidation, supported by an employer market seeking standardisation to a high level of quality in delivering requisite training for its employees.
This is further supported by an opportunity to further digitise the service offering, streamlining of internal processes while, at the same time providing cost savings efficiencies. An attractive market and Milamber Ventures' experience and expertise combine to offer a low risk growth opportunity for investors as long as we can get co-operation with the two main regulators those being the Education Skills funding Agency and Office for Standards in Education, Children's Services and Skills (OFSTED).
Milamber stresses the opportunity for efficient and profitable training via digital learning, utilising a holistic approach linking awarding organisations, assessing/assessors, funding agencies and inspection organisations with the candidate at the centre of activities. It identifies an average cost-to-employee price point for an apprentice trainer of c. £56,500. It aims to use digital and remote learning systems to deliver apprentice qualification packages at a lower price-point, particularly in markets which show an increased interest in vocational training combined with applicability to digital delivery: Finance and Business, Health and Social Care, Information Technology and Legal services.
THE UK WORKPLACE TRAINING MARKET: 1.9M EMPLOYERS OF 29M PEOPLE
The most recent (2016) government survey of employment training practices - the DoE Employer Perspectives Survey (EPS) - provides an overview of the market opportunity for vocational training in the UK. The survey involved 18,028 employers across both the public and private sectors and applied to a total of 1.9m employers (ONS data, 2015) employing 28.6m people.
Over 97% of employment establishments have fewer than 10 employees; 53% fewer than 5 persons. This again demonstrates the need for innovative training and development techniques as time away from the business activity is not cost effective or available. As Chart 1 shows, there is an inverse relation between the number of establishments and the proportion employed: 53% of all establishments employ just 9% of the workforce. Business services and wholesale/retail together comprise over a third (34%) of total employed.
CHART 1: UK DISTRIBUTION OF EMPLOYMENT ESTABLISHMENTS
53% employ 2-4 people, which constitutes 9% of the workforce.
22% employ 5-9 people, which constitutes 9% of the workforce.
15% employ 10-24 people, which constitutes 15% of the workforce.
5% employ 25 -49 people, which constitutes 12% of the workforce.
3% employ 50-99 people, which constitutes 12% of the workforce.
2% employ over 100 people, which constitutes 43% of the workforce.
Source: ONS March 2015
JUNE 2018: 23.9M IN FULL-TIME EMPLOYMENT
With unemployment at low levels (4.0%) last seen in 2005, or before that 1978, latest data indicates a healthy UKemployment picture.As of June 2018:
There were 32.39m people in employment, an increase of 313,000 on June 2017;
Of which 74.1% are in full-time employment, 14.7% are self-employed and 2.41% are on zero-hours contracts (ONS data);
Of total employed, EU nationals comprised 7.0%, and non-EU 3.9%.
VOCATIONAL QUALIFICATIONS RATED HIGHLY IN HEALTH AND SOCIAL CARE SECTORS
Overall, vocational training is rated ahead of academic qualifications by employers in the hiring process, scoring 49% in the "Significant" and "Critical" categories of importance, compared to 46% for Academic credentials, but behind School qualifications (Maths and English GCSE grades A-C) at 56% and Workplace experience (65%) (Source: DoE EPS Report 2016).
As Chart 2 illustrates vocational training is rating highly in the Education, Financial/Business and Health/Social Care sectors. These also rate highly in terms of mean work placement days (Chart 3).
CHART 2: VOCATIONAL QUALIFICATION RATING BY SECTOR
Education 77% rated vocational training significant
Financial / Business 74% rated vocational training significant
Health / Social 58% rated vocational training significant
Construction 56% rated vocational training significant
Primary Sector 56% rated vocational training significant
Other 55% rated vocational training significant
Public 52% rated vocational training significant
Transport, Comms 52% rated vocational training significant
Manufacturing 45% rated vocational training significant
Retail 39% rated vocational training significant
Hospitality 32% rated vocational training significant
Source: 2016 DoE EPS report
CHART 3: MEAN NUMBER OF WORK PLACEMENTS BY SECTOR
Public 10.7% rated vocational training significant
Health/Social 10% rated vocational training significant
Education 10% rated vocational training significant
Hospitality 6.5% rated vocational training significant
Other 5.8% rated vocational training significant
Retail 4.8% rated vocational training significant
Financial/Business 4.6% rated vocational training significant
Transport, Comms 4.4% rated vocational training significant
Manufacturing 3.5% rated vocational training significant
Primary Sector 3.2% rated vocational training significant
Construction 2.6% rated vocational training significant
Source: 2016 DoE EPS report, IFF Research
LATENT DEMAND - HEALTHCARE AND SOCIAL CARE HIGHLY-RANKED
The UK Technical and Vocational Education industry is estimated to be worth £816m in terms of revenue (source: IBIS World, March 2018) employing over 22,000 persons across 700 businesses.
IBISWorld highlights factors - public sector funding cuts and the post-2007 economic downturn - which have combined to create demand for private sector schemes, noting:
"The Technical and Vocational Education industry has been relatively volatile over the past five years as external economic conditions, governmental changes to the educational funding structure and educational legislation have affected performance. Public-sector cuts adversely affected the industry, as most industry operators are not-for-profit organisations that rely on government funding. For example, funding for adult education was cut by approximately 24% in the academic year through 2015-16. This coincided with an estimated 6.9% decline in industry revenue, the steepest year-on-year decline throughout the past five-year period. However, high unemployment in the wake of the economic downturn encouraged many to enter training to improve their competitiveness in the UK job market."
The three sectors most likely to use private training providers are Education (85%), Construction (74%) and Health and Social Care (74%).
Private training was selected overall for the following reasons:
Provision of relevant training and courses: 57% responded;
Supplies equipment: 17%;
Courses are tailored to specific requirements: 16%;
High quality: 14%.
Source: 2016 DoE EPS and IFF Research sample, 9,972 respondents.
CHART 4: USE OF PRIVATE OR PUBLIC TRAINING PROVIDERS BY SECTOR
Education 83% 36%
Construction 74% 17%
Health/Social 74% 28%
Public 73% 30%
Primary sector 65% 17%
Manufacturing 64% 17%
Other 62% 19%
Financial/Business 57% 12%
Transport, Comms 55% 8%
Retail 48% 9%
Hostility 42% 8%
Source: 2016 DoE EPS report, IFF Research
AN 'OUTDATED' EXAM-BIASED EDUCATION SYSTEM?
Following a 2018 university entrance season in which requirements were deliberately lowered to fill an excess of course places, but fees and costs remain high, the relevance of university education is the focus of debate. Writing in The Times (20thAugust 2018) Paul Johnson, Director of the Institute for Fiscal Studies questioned the validity of an exam-based educational system starting at age 16 - GCSEs, A-levels, degrees - which, it has been suggested, could be replaced by a "broader 14-to-19 curriculum, encompassing vocational as well as academic qualifications". Paul Johnson closes the article noting that his son declined a university place and "embarks on a higher-level apprenticeship next month".
This reinforces the case for whole person education which focuses not just on the actual core knowledge but on the wider development of the individual, an area that current digital training practices pay little attention to, Milamber intends to address this oversight.
BUSINESS MODEL - DIGITAL LEARNING VERSUS 'EXPENSIVE' TRAINERS
Milamber highlights the high cost of professional apprentice trainers, in terms of salary and cost-to-employ (Chart 5), based on data from employment search sites such as Fish4jobs ( www.fish4.co.uk ), Monster ( www.monster.co.uk ) and Indeed ( www.indeed.co.uk ).
The overall average total cost to an employer is estimated at c. £56,500.
Milamber aims to use digital learning packages blended with face to face training to deliver more effective high-quality delivery of courses and personal development that increase engagement, recall and retention, at lower price-points.
CHART 5: TRAINER SALARY BANDS AND COST TO EMPLOY
Salary Cost to Employ
Digital £54,120 £67,650
Legal £52,500 £65,625
Insurance £47,700 £59,625
Finance £40,950 £51,188
Healthcare £40,500 £50,625
Construction £35,160 £43,950
Source: Company data
A DIGITAL SKILLS SHORTAGE
The UK has a shortage in skills in science, technology and engineering which contrasts with countries such as the US, Germany, Norway or Switzerland.
There are examples of initiatives to address the problem. The start-up WhiteHat, in (https://whitehat.org.uk) with WeWork-backed FlatIron, offers a digital skills apprenticeship scheme. Placements include Google, Facebook and Warner Bros., and from October will include engineering skills training.
Latest (May 2018) data indicates that the government's target of creating 3 million new apprenticeships by 2020 is ambitious. The latest data show a 25% decline in apprenticeship take-up, from 309,000 for the 6 months to February 2017 to just 232,700 for the corresponding period this year. There are currently 912,200 on apprenticeships. In 2016/17 there were 491,300 starts, but this was 18,100 below 2015/16 levels.
James Hurley wrote in the Times in January 2019 that a recent survey of 765 levy-paying businesses found that 95% failed to spend all their apprenticeship budget in the first 12 months of the new system and expected to spend an average of 56% of their funds annually in the future.
50% of levy payers said they want more flexibility for use of funds on technical and professional courses for existing staff.
TAKE-UP HAS BEEN DISAPPOINTING
There are currently 912,200 participants in apprenticeship schemes.
Data for May 2018 show a 25% YoY decline in apprenticeship take-up from 309,000 for the 6 months to February 2017 to just 232,700 for the corresponding period this year.
Official figures then showed in December 2018 that there were 375,800 apprenticeship starts reported for the 2017-2018 academic year compared with 491,300 in the 2016/2017 period a significant reduction of 24%.
In 2016/17 there were 491,300 starts, 18,100 below 2015/16 levels.
Again this reinforces that increased education on industry awareness, simplifying and modernising the levy process to meet companies' needs is vital.
Qualification levels range from Intermediate Level (2) (5GCSE grades A*-C), and Advanced (3) (2 A-Level passes) to Higher (4-7) at Foundation degree level or above. 2016/17 apprenticeship starts were distributed as follows:
Intermediate, Level 2: 53%;
Advanced, Level 3: 40%;
Higher, Levels 4-7: 7%.
The most common subject area is Business, Administration and Law, overtaken by Health, Public Services and Care in 2016/17.
Source: Department of Education, Apprenticeship and levy statistics,13 September 2018
APPRENTICE LEVY EARNINGS CONTRIBUTION
Milamber in Table 3 illustrates the economics of provision of courses and qualifications within the Apprenticeship Levy scheme, the key inputs and variables being:
Apprenticeship Level and associated funding band;
Funding allocation: currently 90% government-provision, 10% employer-provided;
Course term (months);
Estimated take-up and attendance;
Course completion expectations / drop-out ratio;
Opportunities for additional revenue streams;
Cost of provision: registration fees, completion-related expenses, travel and ancillary administration costs.
TABLE 3: ILLUSTRATIVE EXAMPLES OF APPRENTICESHIP LEVY COURSE ECONOMICS
Courses Level 2 Level 4 Digital Digital Digital
Funding Band 2 3 12 15 12
Funding per person £2,000 £3,000 £15,000 £18,000 £27,000
Course months 14 18 36 36 36
ESFA portion @ 90% £1,800 £2,700 £13,500 £16,200 £24,300
Employer contribution @10% £200 £300 £1,500 £1,800 £2,700
Participants 40 35 25 25 25
Funding income £80,000 £105,000 £375,000 £450,000 £675,000
Additional revenue 50% 50% 0% 0% 0%
Total £120,000 £157,500 £375,000 £450,000 £675,000
Gross margin 37.0% 45.0% 65.0% 65.0% 65.0%
Gross contribution £44,400 £70,875 £243,750 £292,500 £438,750
Operating contribution 16.0% 25.0% 48.0% 48.0% 48.0%
Annualised £16,457 £26,250 £60,000 £72,000 £108,000
Source: Company Data, Milamber Ventures plc estimates
PURPOSE OF THE APPRENTICESHIP LEVY SCHEME
Introduced in April 2017 the Apprenticeship Levy scheme aims to add a total of 3 million apprentices by year-end 2020 compared to a total of 1.5m completing apprenticeships between 201/11 and 2015/16.All UK employers with an annual pay bill of over £3.0m must contribute a levy of 0.5% of their pay bill, minus a £15,000 allowance per year (e.g. £30,000 on a £10m bill).Employers below the £3.0m wage threshold generally contribute 10% of the costs of an apprenticeship, with the government contributing 90%.
COMPANIES PAYING THE APPRENTICESHIP LEVY
For employers paying the Apprenticeship Levy:
Funding bands determine the maximum which can be spent on an apprenticeship; these are deposited in a digital account and vary according to the type of apprenticeship but not age. Funds in the digital account will expire after 24 months if not used;
Any fee agreed with the training provider above the band maximum is paid in full by the employer;
Employers are entitled to a £1,000 incentive payment for recruiting 16-18 year old apprentices, or an apprentice aged 19-24 year within an Education, Health, and Care (EHC) plan, paid in two instalments by the training provider (£500 after 3 months and £500 after 12 months).
COMPANIES NOT PAYING THE APPRENTICESHIP LEVY
For employers who do not pay the Apprenticeship Levy:
Employers with more than 50 employees which do not pay the levy pay 10% of the training costs of each apprentice;
Employers with fewer than 50 employees pay nothing towards training an apprentice aged 18 or under (or aged 19-24 with an EHC plan) if the cost of their training is within the maximum funding band;
Non levy-paying employers are subject to the same apprenticeship funding bands as levy-paying employers;
Non levy-paying employers also access funds through the digital account;
Non levy paying employers are also eligible for the £1,000 incentive payment for apprentices under 18, (or aged 19-24 with an EHC plan).
ACCESS TO FUNDING
To access funds in the new digital account employers must register online with the Skills Funding Agency (SFA) at www.gov.uk/guidance/manage-apprenticeship-funds;
The SFA requires employers to estimate the amount of apprenticeship funding needed;
If funds in the digital account are exhausted, employers pay 10% of any additional apprenticeship training costs. The Government pays the remaining 90%, up to the maximum in the funding band.
SELECTING A TRAINING PROVIDER
Employers must approach an apprenticeship training provider for apprenticeship training;
Employers can select an apprenticeship training provider from the Government's approved list;
Employers need to negotiate the cost of delivering training with the provider;
Employers must sign a contract with the training provider and the apprentice to begin an apprenticeship.
FOR THE APPRENTICE
Apprentices receive £150.0 - £180.0 / week for a minimum of 30 hours with 20% in off-job instruction.
For more information contact Milamber Ventures plc:
or our recently acquired Apprentice Levy Registered training company Astara Training.