Peoplein Limited (PPE) Earnings Call Transcript & Summary

Welcome, everyone, to our investor conference call going over the first half results for FY '21. I'm joined by Megan Just, our CFO; and Tom Reardon, our -- my fellow Executive Director. Just firstly, just reflecting on the half before we get into the detail. It obviously started off with a very challenging half in the midst of the COVID-19 pandemic. But very pleased to report that the business rebounded quite strongly during the half and now sort of sitting here looking forward to the rest of the financial year, feel very strong around how positive the results are going to be for the rest of the year. Just starting off, I'd also like to just call out our employees. It's been an incredibly difficult half and really a very difficult 12 months. And you think the pandemic started way back in March, and these results are really a reflection of their tenacity and resilience and their commitment to the business. And so that's been incredibly appreciated by ourselves. And I'm sure on behalf of -- as a shareholder, on behalf of other shareholders, we thank them as well. Just having a look at the numbers. So our revenue for the period was $201 million, which is 3% up on the previous corresponding period. Our underlying EBITDA was $21 million, which was 49% up on the previous corresponding period. And our NPATA was $13.7 million. So from a financial performance perspective, we're very pleased with these results. We've kept our dividend at $0.045, which is the same about the dividend we declared for the second half of FY '20. Our cash position is quite strong. We've got $7.2 million in net cash, net of debt on the balance sheet. Our -- one of the most pleasing things about our business has been how consistently we've been able to grow our business, both organically and through acquisition, over the course of the last 4 or 5 years. And really since we listed the business, it's been pretty consistent growth that we've been able to produce for our shareholders. We've grown, whether it's revenue or EBITDA or NPATA or EPS growth, it's all exceeded 20% over that period, which when you think about some of the volatility we've had to suffer through over that period is a result that we're pretty pleased with. In particular, I'd say our earnings per share growth at 26.6%, which is a key driver of shareholder value, is a really good result, something we're very proud of. The good news is just sort of looking forward, we still see across, all our business lines, so many opportunities to continue to grow, both organically and through acquisition. And the changes that we've made in the businesses, the things that we've done in our business to continually invest in the business and make it as strong as possible means that we're sitting here in 2021, I think, in potentially the strongest position we've ever been to really continue to grow the business over the course of the next 5 to 10 years. Just calling out some of the other key highlights of the half. We completed 1 acquisition, 2 businesses. So eCareer and Illuminate, that was completed just at the conclusion of the half, and so those results will flow into this half of the financial year. Very excited to have Jeff and Mario and the rest of the team come and join us. It's a tremendous business with a great presence in that Sydney IT market, some terrific clients that they've been serving for a long time, and I know they're going to have an incredibly positive impact on our business. Our homegrown businesses in home care has performed incredibly well over the last 12 months. Joe, who's been leading that business, has done a tremendous job. We're up to $7 million in packages under management, over 100 clients. And that's all in the space at 12 months, so it continues to go incredibly well. Our facilities maintenance business has also been growing incredibly strongly, picking up a couple of major contracts there. And it really proves out our theory that if you can do a tremendous job in managing people, then you can step away and broaden your offering to clients in heavy people lift businesses. And both home care and facilities maintenance businesses really prove that. We're well funded. We've got $60 million to $75 million in capital available, taking some pretty conservative estimates of what we do with our balance sheet to make further acquisitions, and I'll talk a little bit about that later on. So just finally, look, as a business, the mantra throughout our company is very much about trying to make an extraordinary impact, whether that be with candidates in the field or with our clients, or with our fellow employees. We, as a company, we have a tremendous group of people. We've got over 300 staff in our business, which is very diversified, and we're proud of that. 68% of our staff are women, 60% of leadership roles across the group are held by women, 25% of our staff are culturally and linguistically diverse. So it's a tremendously diverse but very effective workforce that we have in our business. And that group of people are out there servicing up to 3,600 clients with over 6,000 staff engaged on any particular week. So touching on our strategy before I hand over to Megan and we jump into the numbers. And most of you will be fairly aware of this, but we're very much a diverse family of brands. And we're powered by a corporate office that very much looks to service those client-facing brands. Over the last 5 years, we've developed a very diverse group of sectors that we look to service. And we focus on sectors that we think have got really attractive long-term tailwinds in the Australian economy, where the demand for the services we provide is long term and quite pronounced, and we have a real point of difference in servicing our clients in that space. So you can see on the slide there all the different brands that we have across our business and all of that powered by PeopleIN. PeopleIN will be new to a lot of people on this call. That's our -- we've refreshed our People Infrastructure brand internally to give a new face to People Infrastructure, and it's been incredibly well received by our employees in the business. Just the markets that we're looking to grow in. Once again, this is all consistent with our previous strategy that's been outlined, very much focused on health and community services market, the technology market and the industrial and specialist service market. And we focus on those 3 particular sectors with a number of different services. The 3 major ones being staffing, business services and operational services. At our core, our capabilities around staffing. And from being very good at staffing, we've been able to expand into business services and operation services. And I expect that we're going to continue to grow into those service lines more in the future. What does that mean for our addressable markets of focus? Well, it means it's a pretty big market that we're actually focusing on. Staffing is a $29 billion market. But when you added business services and operation services, that increases to $255 billion market. So when we're thinking strategically about how we can grow our business while still staying in our lane and still staying and operating businesses that are consistent with our capabilities, it's a huge market when it comes to looking at where those opportunities might come from. And over the last few years, you will have seen, as we've grown our businesses in those markets, that we can do that quite successfully. So now I'll just hand over to Megan, who will run through our financial results.

Good morning, everyone. We've had a really strong performance during the first half of this financial year amidst the challenging period due to COVID-19 conditions. Both revenue and EBITDA have increased from the first half of financial year '20 to 20 -- $201 million and $21 million being an increase of 2.7% and 49.3%. Diversification of verticals and focused cost control during the first half supported these strong results. We also continued to invest into new business units within the group being home care and facility maintenance. We received $13.2 million from JobKeeper during the 6 months to December, of which $3.1 million was paid to internal employees and $10.1 million was paid to our employees in the field. The receipt of these money have enabled us to make decisions to not stand down or terminate a large number of employees. Quarter 2 of the half performance was stronger than quarter 1, giving us confidence moving into the second half of the year with performance across the group moving towards pre-COVID results. Just looking at capital management. We've remained in a net cash position as we were at 30 June of $7.2 million, putting us in a strong position to undertake further acquisitions. In addition to the cash, we have undrawn working capital facility of $18 million available. And our operating cash flows have remained strong and includes the repayment of a number of deferrals obtained as a result of COVID totaling $7.7 million. The net asset position has strengthened as a result of the strong performance of the group. Debtor days have remained exceptional at 37 days. There's been a concerted effort across the group to ensure that debtor days remain low throughout this period of uncertainty of client cash flows. I'll hand back to Declan now.

Thanks, Megan. My only comment on the financials, just because I've had a couple of questions this morning on them, is just with respect to the cash flow numbers and the adjustments there. And I think the best way to look at it is if you look at it over a 12-month period, which takes out the impact of moving tax payments from one half to the other. Then our cash flow on both a statutory and a normalized basis has been approximately $25 million over that period, and our NPATA has been approximately $23 million. So that may be a simple way of looking at it. I'll just also point out, as Megan said, our second half is typically stronger when it comes to cash flow. For January, our operating cash flow was $6.4 million for the month. We always get a strong bounce back in -- if you look back last year, I think we did cash flow of $3.2 million in January for the month. So we always have a very strong bounce back in the second half. Just talking through now the -- going to business update. So our total group billed hours, you can see it was immediately impacted -- significantly impacted when the pandemic first hit Australia back in March and April. And then we have slowly but surely recovered from that period. And looking where we're starting the year, as I said at the outset, it's -- we're putting up record hours across our business, which we're always hopeful and expectant of a strong rebound, but it's been terrific to see that actually come through. Just going through each of the businesses. So the community -- starting on the community services vertical where we're focused on providing workforce management and supplementary staffing within the disability and child protection sectors across Australia. That had a tremendous half, this business. It has -- it grew strongly versus previous corresponding period and also grew strongly on the second half of FY '20. It has picked up a couple of major clients there and continues to be a strong contributor to our group. With respect to the health care vertical, you will recall that as a result of government putting in a lot of restrictions around hospitals and types of surgeries that were allowed during the pandemic, there was a significant decrease in demand for nurses during that period, and that impacted our business. So it was impacted in the second half of 2020 and continued to be impacted in the first quarter of this financial year. That being said, it has certainly rebounded. And so it's 40% up on the second half of FY '20. It has grown strongly throughout the half. And it's -- looking at how it's tracking in January, I'm expecting it to have a very strong half because it's sort of back to a more normal condition. I'll just -- given Tom's here, I'll let him talk about the industrial and specialist services vertical.

Yes. As Declan stated, we expected a pretty strong bounce back from the industrial and specialist services area based on what we've seen previously post GFC where clients are wanting that flexibility to outsource and obviously, then a tightening of staff resources once the economy comes back in uncertain times. So we've had some really good bounce back from the hospitality and childcare sectors, which obviously got hit the hardest in the industrial sector for us. We were very strong through the COVID period due to our food processing clients continuing throughout that period and also in the other industrial sectors, the mining in the copper and zinc. And further our specialist services, as Declan presented earlier, we've secured some large long-term contracts throughout that period, and that continues to get us further up the value chain. And we expect in the future, some -- with the infrastructure spend that's coming through on each state with our clients a further increase in that space. So that's pretty much the overview for us.

Thanks, Tom. And just on the technology vertical, as foreshadowed at our previous investor road show, the bounce back in our IT business was going to be slower and longer than the rest of the business. That has played out, but it certainly has recovered, and the outlook for that business for the second half is very positive. It has a heavier reliance on perm billing. So they're the placement fees, which has been more negatively impacted across the workforce management recruitment industry. And in our business, where we have permanent placement fees, most of them come out of our IT business. So that has had more of an impact on that business. But as I said, that business has bounced back strongly. Looking at November, December and January and the outlook through to the rest of the year, we feel really positive about that business and the momentum coming out of that business. So expecting a pretty decent increase in the profitability in the second half versus the first half. I'd also make a special call out to the employees in this business because, it being heavily Melbourne-based, when I talk about the tenacity and resilience of the company, I am heavily referring to the people in this business who have done a terrific job in keeping that business going and working in remote and difficult workforce environment and maintaining the service they provide to their clients. Just on the group net headcount. As you can see, we successfully grew our staff over the course of the last 6 months. We're now -- we now have over 6,000 people that are out employed every week. And when we talk about JobKeeper and the purpose of JobKeeper and the influence it had on our business, well, look, it definitely allowed us to retain roles while we're receiving that subsidy. And this definitely helped support a really positive rebound across our business. What that meant was we were in a position where we could put more people into work as quickly as possible, very much consistent with the government's mandate. It also meant that our casual staff, the worst stood down and meant that we could continue to be connected with them even when they weren't working, completely passing through that JobKeeper money to them, but we remained connected to them so that when the roles did start to emerge again, we could very quickly put them back into work. Just before I talk about the outlook, I'd just like to make mention of our outgoing CEO, David Cuda. Dave has resigned for personal reasons, and he'll be leaving the group in March. I just want to thank him personally and on behalf of all the employees and shareholders. His contribution and leadership has really made a difference for us over the -- over recent times and over a long time as well just being part of the organization. So I thank him very much for that. I'll be stepping in on an interim basis while we conduct a search for a -- or recruitment process for a replacement CEO. And we'll report back to the market in due course on that. So in terms of the FY '21 outlook and profit guidance and how we're seeing things in the business. So I'm sure you sort of get from the tenor of what we've been talking about, we certainly expect the second half to be stronger than the first half. The momentum is certainly with us. And the business has been considerable growth across all aspects of our business during the half on a monthly basis. And so we're starting off the second half in a really positive position. We're going to continue to focus on acquisitions as well. We -- there's one particular acquisition that we're working heavily on at the moment. Hopefully, we'll be in a position to announce something there over the course of the next half. We're pleased to complete the eCareer and the Illuminate acquisition. But we're well capitalized, and we're looking at a number of other opportunities. So expect to continue to grow by acquisition over the course of the next 6 to 12 months. So in terms of our forecast, we are guiding the market that we expect our total normalized EBITDA to be in the range of $35 million to $37 million by -- and this is based on -- obviously, it's quite a volatile economic environment on the back of the pandemic. That's based on there being no same macroeconomic shocks either domestically or the imposition of any further COVID-19-related restrictions. I just want to -- and I also just want to make it clear, and we pointed this out in the press release that we're no longer adjusting for AASB 16 relating to leases. So we've updated our comparables so they're like-for-like. But I just want to make sure that that's not missed by anyone. Given it's a permanent change in the accounting standards, we're not making that adjustment. And that would usually be about $1.6 million per year. So on that note, I'd just like to hand it back to the moderator or open it up for questions.

[Operator Instructions] Your first question comes from James Lawrence from Morgans.

I was just wondering, Declan, if you -- I mean you touched on the acquisition pipeline. Could you just talk a bit about, I guess, multiples? Obviously, you said that your business has bounced back, and we've seen that in the charts across the various sectors. Could you just talk about, I guess, acquisition multiples and what you're seeing on that front out there in the market, please?

Yes. Thanks, James. I think, look, we're probably seeing acquisition multiples in the range of 4x to 6x is where we're seeing them. Now typically, we've acquired businesses at the lower end of that range, and that's still certainly our expectation. In some cases, we paid lower than that depending on what the growth outlook is for the business and the sector that it's focused on. One thing we've always done has been very rigorous when it comes to our due diligence and also very strict with our acquisition criteria and our -- and making sure that we don't overpay for businesses. So there will certainly be no change to that.

Okay. Great. And then just another question just around JobKeeper. And obviously, you mentioned that you expect the second half to be stronger. I mean just on those full year numbers that you've put out there. I mean they look, I guess, relatively flat half-on-half adjusted for JobKeeper. I mean is that just, I guess, forecasting a slower ramp-up from the perm IT recruitment and things like that?

Yes. Look, I think it's a volatile market. So putting out -- we want to put out guidance given the difference between the second half and the first half. But we also, as a company, have certainly got a track record of being very conservative in any discussions we've ever had with the mark in terms of our outlook. So we've really tried to maintain that conservatism with the expectation that anything that we put out there, we like to under-promise and then over-deliver.

Your next question comes from Will Macdiarmid from Ord Minnett.

Declan, welcome back. Just a couple of questions from me and a bit of an extension from James' question a moment ago. If you back out JobKeeper in that first half, it still implies that you've delivered much stronger margins in the first half than what you had done, really, previously. And then taking your guidance as a guide at the second half sort of goes back to what you've done in the past. Can you talk a little bit around the drivers of that? And maybe the extent of cost out in the first half that might be coming back in the second?

Yes. Yes, for sure. So I think sort of, firstly, just on the AASB 16 impact, that will have about a 0.5% impact on our EBITDA margin. So just keeping that in mind, that's the first point. I think on the second point is we do expect perm placement fees, which is obviously a very high-margin part of our business, they'd be much stronger than the second half. So that would also have an impact. You're right in terms of some of the cost outs that we had in terms of managing employee hours and partially reducing those hours. That didn't have a huge impact on the first half. That was more in the second half of FY '20, but there'll be a slight pickup there. And look, I think just from a revenue perspective, when it comes to forecasting, we're probably more focused on our gross profit than our revenue. And so I think we probably -- we -- I think we've probably underdone our revenue forecast for the second half.

Okay. No worries. So then just clarifying on JobKeeper. Just to be clear, the $10-odd million, that was passed straight through and had no impact on your bottom line. So I guess any real net benefit in that half was really more around that $3 million.