Peoplein Limited (PPE) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to People Infrastructure Limited FY '21 Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Declan Sherman, CEO. Please go ahead.

Thanks very much. Thanks, everyone, for joining us on our annual conference call to go through our FY '21 annual results. I'm joined by our CFO, Megan Just, and by our fellow Executive Director, Tom Reardon as well. Before I get into the results, I'd just like to make a special mention to all our employees, many of which are investors and shareholders in our company, for all the work they put in throughout the year, they've worked tirelessly to produce such a great result. And as a company, we thank them especially for that. I'm going to run through the presentation today that we uploaded onto the ASX website. Just starting with the highlights for FY '21. There were a number of highlights. And when we think back to where we started the year and the uncertainty based around the lockdowns relating to October '19, we look back and we think this is a tremendous result to produce, the set of numbers that we've produced for the year. One of the themes that I'll talk about is not just the growth that we've experienced in FY '21 versus FY '20 but the growth that we've experienced throughout the year. The second half was a much stronger half than the first half, and it's meant that we're starting FY '22 in a very strong position. And that's really been consistent across all divisions throughout the business. In terms of some of the headline numbers, so our revenue for the year was $444 million, which was an increase of 19%. Our underlying normalized EBITDA was $38 million, which was an increase of 33%. And our underlying NPATA was $25 million, which was an increase of 37%. That translated into growth in our EPS of 33%. So we finished the year with $0.27 as our EPS. As a result, we declared a dividend of $0.06 per share, which takes our total dividends for FY '21 up to $0.105 per share. In terms of the highlights across our customers, people and community, there are many. I've chosen to just call out a few of them. But it was terrific to be able to respond to all of those stakeholders in such a positive way throughout the year. We employed over 13,000 staff in the field. We increased our number of hours billed by 18% to 7.7 million, and we served over 2,700 clients. In terms of our workforce, our people, we increased our number of employees by 111, which amounted to substantial growth through the business. It was partially related to the acquisitions we completed throughout the year, which I'll talk about in a second, but also relating to just organic growth coming through in the businesses that we operate. And when I think forward to FY '22, there's particular focus on growing our workforce to continue to meet the demands that are coming through from clients. In terms of how we operated in the community, once again, just calling out some of the highlights. We employed or placed over 500 indigenous candidates across our business. We grew our Homecare business from 30 people to 130 people at the end of the year, and we planted over 4.5 million plants through our Timberwolf brand. Just moving on and talking about the acquisitions we completed. As more economic certainty came through throughout the year, then we could continue to execute on our acquisition strategy. We did that across each of our divisions, which was pleasing to see, and one of the things that we've invested in over the last couple of years with our corporate services team so we can rapidly not just make the acquisitions but integrate them quite successfully into the business. And I've been particularly pleased by how well the businesses have been received into the people and family and been able to execute and improve on their businesses as being part of the bigger group. So the acquisitions we completed throughout the year. In health care, we bought Swingshift, which is a Victorian-based nursing agency that specializes in mental health. We acquired Ecareer and Illuminate, which is the Sydney-based IT recruitment business. We acquired Techforce, which is a West Australian and South Australian-focused industrial workforce management business. And Vision Surveys, we didn't complete the acquisition of that business until July this year, although we announced it in FY '21. So it was great, after a period of some uncertainty relating to COVID, to get back on to executing on our acquisition strategy. As a business, we've still got significant capital and significant opportunities coming through to continue to grow our business in each of the divisions. In particular, there's opportunities that we're specifically looking at in health care, IT and training and education. We have capacity on our balance sheet to fund, I've called out in the presentation, approximately $50 million to $70 million in cash that we can fund without stretching our debt-to-EBITDA levels, so keeping them below the 1x limit, which is not one the banks place on us but one that we feel comfortable being an appropriate amount of debt for our business. In terms of the organic business units that we've been able to grow ourselves, our Homecare business continues to grow really well. As I said earlier, we've substantially grown the number of candidates that we've got in that business, the number of people that we're servicing. We've invested in technology and expect to considerably scale that business throughout FY '22. Our Tribe business, which is outsourced HR and payrolling services, also grew substantially throughout the year and is expected to grow throughout FY '22. The employment market has also been one of the highlights throughout the year. There was a significant bounce-back in demand for employees throughout the year. Employment is up 6.3% year-on-year and, more importantly, sits above where it was prior to COVID coming in, 1.4% above that level. In very strong employment markets, the demand for our services escalates even more, and we've been able to benefit from that demand coming through from clients. At the moment, there's a little bit of uncertainty in New South Wales and Victoria, in particular, with respect to the lockdowns and what we traditionally have seen, what we saw very recently was when we come out of these periods, there's even increased level of demand coming from clients. So once again, expect escalated demand coming once those lockdowns ease. Just looking back at our performance over the last 7 years and the compound annual growth rates over the last 5 years. I think this is perhaps a slide that we're most proud of. It really demonstrates the strength in our business. And the formula that we've gotten is very much working across our business. We think we've really been able to carve out a niche for ourselves in the sectors that we focus on with respect to recruitment and employment. We've got leading positions in each of those sectors that we focus on. And that's enabled us to continue to grow our numbers very consistently over a number of years. Just looking at our strategy. I won't spend too much time talking about this, although I wanted people to see what's been some of the secrets to some of the success that we've had. In terms of our family of brands, there's a number of brands there. The key thing for us is we're organized along divisional lines. And each of those divisions is basically operating at a position of 1 or 2 in terms of the sectors on which they focus on. And that strength that they've been able to exhibit in those sectors has been one of the key reasons why they've been able to continue to attract clients, attract candidates and grow their businesses. In terms of the pillars that we look at, which underpin that growth in our business, there are 3 major pillars: the first thing, together, so it's how we bring our business together as a whole and how we bring the individual brands together under each of the divisions; the second is perform, so how we cultivate our businesses to be market leaders in the sectors that they serve; and the third is transform, so these are the bigger initiatives that we make which really lays down the tracks for our future prosperity. The markets that we focus on are incredibly large. Over time, we've been able to expand from staffing services to business services and operations services, really taking full advantage of the capabilities that we have in the staffing space. They're big markets that we service in each of those categories. In total, we see a combined opportunity, in terms of the markets we focus, of over $250 billion. Just talking about the growth opportunities that we're focused on. In staffing, there's a number of new markets or new verticals that we're focused on. I called out some of them in the presentation, being doctors, allied health, education and white collar. We're pursuing both organic and acquisition opportunities in each of those sectors. We're also looking at expanding regionally into markets where we currently are providing those into markets where we've got services but we're not currently providing those services. So we've got those capabilities. Business services, the main one I'd call out there is training and education. Increasingly, we've seen it as being an opportunity with respect to our clients and also an opportunity with respect to the talent that we employ in our business to be offering more from a training and education perspective. In particular, we're very focused on the talent life cycle and how, with the relationships we've got with our talent and with our employees, we can continue to capitalize on that and offer them more. So we're not just offering them employment opportunities but we're also offering them training and education opportunities. We've already got a small RTO that exists in the health care space, and we're very keen to grow in that part of our business. We see it as being a key driver of more employees into our staffing business and also another, as I said, way to capitalize on those relationships we have with our employees. And finally, on the operational services sector, there's a number of opportunities that we're continuing to pursue and continuing to grow. Homecare, we're looking to continue to grow that business of ours. That's already showing significant growth throughout FY '21. We're looking at other opportunities in that space, which really expand on our capabilities in the staffing sector. The financial results, I'm just going to hand over to Megan.

Thanks, Declan. The annual results for this financial year have broken records in both revenue and EBITDA contribution, with the second half of this financial year showing a really strong recovery from the impacts of COVID in the first half. The EBITDA contribution was $38 million with $17 million recorded in the second half. These results reflect the resilience of the group as a result of the diversity of industries and the locations that we operate in. We've been pleased with how quickly all divisions have rebounded from the impact of lockdowns, and all were either at or exceeding record profit contribution in the final quarter of the financial year. The IT division has performed exceptionally well with the final quarter, with permanent placements being at really high levels. We are seeing significant demand for our employees across all industries. We have continued to invest in the corporate services function to drive benefits across the entire business. With the added resources in this function, there were 4 significant acquisitions completed during the second half across each of the 4 divisions and across all spectrums of Australia, including Victoria, Sydney, WA, South Australia and then, with Vision completing in July, which is predominantly in Queensland. At 30 June, we were in a net debt position of $25.2 million so we remain in a strong position to undertake future acquisitions. Debtor days remained exceptional at 34 days for the group, excluding Techforce, down from 37 days at the half year. We continue to focus on the collection of debtors and driving these days down, and that's the core of this result. There has been an increase in debtor days as a result of the acquisition of Techforce overall to 47 days. The effective tax rate was 33.72% in financial year '21. And going forward into financial year '22, we're expecting this to decrease to approximately 31%. We're forecasting an increase in capital expenditure in the next financial year with the investment into our systems and processes to continually improve our service delivery and efficiencies internally. We've estimated this to be $2.5 million in financial year 2022. Cash flows from operations have been impacted by the settlement of deferrals obtained as a result of COVID. Our normalized operating cash flows as a percentage of normalized NPATA is 84% over the last 2 years. There is $2.5 million still outstanding with regards to payroll tax deferrals, which will be settled in the first half of FY 2022. So I'll just pass it back to Declan to talk about the businesses.

Thanks, Megan. So just providing a bit more detail on the business as a whole in each of the individual divisions. The total group billed hours increased by 18% year-on-year and the perm revenue increased 12% year-on-year. So very happy with both of those results. As I indicated at the outset, it wasn't just the growth year-on-year but the growth coming through in the second half of the year versus the first half. So for billed hours, the second half averaged 19% higher than the first half. And for perm billings, the second half averaged 132% higher than the first half. So you can see how strong the business has been in the second half of the year and the strength of the position that we have going into FY '22. Just running through each of the individual divisions. With respect to health care, the billed hours increased by 14% year-on-year. A special thing to call out there is, I guess, the increased work that we got with respect to COVID testing, vaccinations and some of the hotel-related quarantine work. Also, I want to make special mention of the acquisition of the Swingshift business, which joined our existing Melbourne nursing business in the second half as well, with a focus on mental health. We've also been very focused on our sourcing of nurses. Our Australian Healthcare Academy has been critical to that. We also acquired ECT4Health, which has also acted as a funnel for nurses for us as well. Excited about the organic growth opportunities coming out of this business as well. We launched our rural and regional nursing business during the year. And that's enabling us to serve as a market we haven't previously serviced, being predominantly regional parts of Queensland and New South Wales. We launched our perm placement health care business a couple of months ago, and that opened up a new market for us as well. We're exploring the acquisition of doctor/locum recruitment businesses as well and other managed services. So as a whole, really strong demand has been coming through from clients, very limited margin pressure in that part of the business and really excited around both the organic and acquisition opportunities we're seeing in that part of the business. The community services business, it increased 10% year-on-year, which was terrific. We launched our Homecare business back in February 2020. So we just had our first full 12 months of operating that business. We have significantly grown the number of people we service in that business. We've invested in systems to make sure that we can continue to scale that business throughout FY '22 and beyond. With respect to our IT business, it was able to grow its billed hours in FY '21 versus FY '20 by 23%. Its perm billings were flat year-on-year. But when you consider that it was significantly down in the first half, that's not such a bad result given the growth that's come through in the second half. So the second half revenue from that part of our business was 43% higher than the first half. So it had a tremendous second half, and the outlook looks incredibly positive for that business. It's been putting up record numbers in consecutive weeks, for a number of weeks, looking back over the last couple of months. So the outlook for that business for FY '22 is particularly good. We're hiring a number of people in that business, but there's also markets in Australia that we're still not servicing, in particular, the Canberra market, that we're keen to continue to grow into. I should say we are partially servicing the Canberra market, but we want to grow our influence in that market and, in particular, grow our servicing of government clients. And that represents a good growth opportunity for us in that business. The Ecareer and Illuminate business joined PeopleIN during the year, in February. That's been integrated into our Sydney Halcyon Knights business. It's done incredibly well. We're very happy with how it's performed and how it's been integrated and just the strength that that's given to our Sydney business just through providing more critical mass into that business. So all up, the outlook is very, very positive. Strong demand from clients coming through in the IT sector at the moment, limited margin pressure and lots of growth opportunities in that part of the business. Then just finally, on to the industrial and specialist services vertical. Increased their billed hours, 23% year-on-year. Margins were fairly steady. It also launched the perm recruitment business, which will grow into FY '22; launched an indigenous joint venture, servicing rural and remote communities as well. Just as a reminder, the main client offerings are food processing, mining and government, and there's been strength in the demand coming through from clients across each of those sectors. Also pleased to have the Techforce and Vision Surveys teams join our business. Really excited around the opportunity for these businesses, both in their own right but also as part of the broader PeopleIN group. There's already a number of cross-divisional referrals that are happening with respect to those businesses, and we're very excited around the growth that I think we can collectively all drive across those businesses and what that means for our broader business. So in terms of the outlook, I think it's safe to say we're fairly positive around what the future means for us. There's been tremendous growth coming throughout the year across each of the divisions in which we operate in. Although there's some, what we see as being, very much short-term uncertainty relating to the New South Wales and Victoria markets, when you break that down in terms of how that impacts our business, it's certainly mitigated by the growth that we're seeing coming across the businesses that aren't as directly impacted, so we're pretty positive both in the medium term but especially in the long term. I think one thing that we've been able to demonstrate is when you look back at our business, in particular for the second half of the year, the strength of the results that have come through the business and the acquisitions that we have made, which will be additive, again, going into FY '22, means that there's significant growth expectations coming through across that business. In more detail, there's a number of initiatives that we've got going on in the business. We're, in particular, investing in the employee experience. So our EVP is really critical to us, and we're doing a lot of work in that space. We're improving our IT systems to continue to improve our employee productivity and our offering to our clients. We've invested in our corporate services functions to better facilitate growth. We're investing in offshore staffing funnels to facilitate further growth post border openings. We think that will be a strong opportunity, in particular if there continues to be staffing shortages. We're expanding our training and education offering, I mentioned that. That's going to be a really key initiative for our business throughout the year, and it's going to drive what we think is going to be very positive incremental earnings to both our staffing business and to whatever the training and education offering is that we invest into. And then finally, we're expanding our geographic footprint. So we're always focusing on markets where we're not currently servicing but we've got the capability to service. And that's across all of the divisions: health care, IT, community and industrial and specialist services. I think our sort of view on the economy is -- what we saw last time was government's propensity spend to continue to make sure that if any lockdown is up for long, there's not going to be long-term economic consequences; the RBA's desire to keep interest rates very low; and also households just building up or accumulating cash and their willingness to spend that once they come out of lockdown. We've always seen, even when you go back to the time around the GFC, a really strong rebound in staffing and recruitment businesses once you've had the temporary impact of either a recession back in the GFC or lockdowns at the moment. So with that, they are all our comments. I will hand it back to the moderator for questions.

[Operator Instructions] Your first question comes from Kurt Gelsomino of Morgans.

Declan, can you hear me okay?

Yes, Kurt.

Yes. Congratulations on solid results. I just thought I'd sort of unpack your outlook comments initially where you sort of talked to the volatility or the impacts of COVID in New South Wales and Victoria being significantly mitigated. So is it correct -- should I interpret that mitigation to mean that you'd expect your second half '21 EBITDA run rate, that sort of $17 million, sort of continuing on in this first half '22? Is that the correct way to interpret that mitigation comment?

Yes, I think that's a fair assumption. At this point, we made the decision not to give guidance. And historically, we never did give guidance until -- with all the uncertainty around COVID, we gave guidance last year. So we sort of reverted back to that. But certainly, assuming there's no major change to current economic conditions and what's happening with respect to the lockdowns, then I expect that $17 million number to be a good run rate number historically.

Terrific. And can you maybe just talk to, I guess, where are some of the, I guess, growth you're seeing across the business at the start of the first half '22 and just talk to, I guess, what are often the impacts being experienced in New South Wales and Victoria across various verticals?

Yes. Sure. Firstly, it's quite varied, right? So the businesses that are being, what I would call, slightly negatively impacted are Sydney nursing business but mainly the private part of that business rather than the public part of that business, our childcare business has had some impact with respect to the casual part of that business but the perm part of that business has been quite strong, a couple of small clients in our blue collar business have been impacted and parts of our Tribe business have been impacted but I wouldn't consider them to be material. But then conversely, our IT business has been incredibly strong, right? As I called out earlier on, the revenue coming through from that business is significantly up on budget. So that's gone a long way to mitigating those businesses, which have had some small downturn.

And I guess given IT is sort of in a bit of a downturn in the initial lockdowns in Victoria, I guess you highlighted a very positive outlook for that business again in FY '22. So you're not sort of concerned by the Melbourne lockdowns at this stage on the IT business.

No, not at all.

And can you just sort of remind me, I think there's about $9 million of EBITDA you're expecting from the acquisitions you completed in FY '21. Is it fair to assume that, I guess, that contribution would be reasonably evenly split first half, second half in FY '22?

Yes. I think so. I guess it's going to be slightly up in the second half just because we didn't complete on the -- like, probably for 2 reasons. One is we didn't complete on the Vision acquisition until start of August, so we're missing a lot there. And also the Techforce business is growing, so we expect it to have a stronger second half over the first half.

Yes. Understood. And maybe just a question on the cash flow. It looked like there was a significant increase in receivables in the year, and I think you sort of flagged the impact of the Techforce acquisition there. I guess was that sort of the driver of the increased receivables? And have you seen that sort of working capital build release in the first half of...

Yes. So look, obviously, the business grew throughout the year. So there was more working capital used throughout the year as it grew. And then we did the Techforce acquisition, which had a considerable receivables book attached to it. We bought the business with the receivables in it. So we didn't have to pay for that separately as such, but that's what drove that increase in the receivables. We have seen July as being a really positive cash flow month, seeing we got $3.8 million in operating cash flow for the month. So there was a partial bounce-back there as well.

Understood. And I guess your M&A comments too are pretty clear. I guess if these recent lockdowns are sort of slowing, I guess, your sort of intention to pursue M&A in the near term.

No. And look, as I called out, there's a particular IT acquisition opportunity that we think just strategically makes a ton of sense to our business. Its numbers haven't been impacted. It's going very well at the moment and we think will be a great addition to our business. There's a couple of opportunities in the health care space as well that we think strategically would be great additions to our business and also specifically one opportunity in the training and education space that we are focused on that hasn't been impacted by COVID-related restrictions. So no, we're very focused on continuing to execute on our acquisition strategy.