Peoplein Limited (PPE) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the PeopleIn Limited PPE Acquisition Update. [Operator Instructions] I would now like to hand the conference over to Mr. Ross Thompson, CEO. Please go ahead.

Great. Thank you very much, and thank you, everyone, for taking the time to join the call. It's very much appreciated. And I'm joined by Tracy King, who is our Head of Strategy and worked closely with Declan on getting this deal across the line. And we're very, very excited to announce this morning the acquisition of Food Industry People Group, which is fantastic for us, and it's a key part of our strategy moving forward. So today, I wanted to take the opportunity to provide an overview of the acquisition and also cover off the rationale behind the deal as well, and then open up for any questions. So without further to do, we all track on the presentation. And hopefully, you can see the slides. So it's 100% share acquisition of FIP. This transaction is subject to conditions and expected to complete by mid-June. So a couple of weeks' time. There's just some minor conditions that we will work through over the coming days. Up-front consideration of $45 million: $35 million in cash, $10 million in shares. And then a further $25 million may be payable as deferred cash consideration over 2 tranches. So it's a 2-year earn-out, then achieving EBITDA growth in FY '23 and FY '24. And that double-digit growth that underpins those EBITDA targets. Expected annualized pro forma EBITDA contribution of $9.5 million and earnings per share accretion of approximately plus 15% in FY '23. Strong management team, really good cultural fit, and they remain invested in the future growth of the business. And the leader, Brad, the CEO, he will report to Tom Reardon, who is our Division CEO for the Industrial division here at PeopleIn. So about Food Industry People to provide a bit more detail before I get on to the rationale. So they are one of the leading players on the PALM Scheme. So that's the Pacific Australia Mobility scheme -- Labor Mobility Scheme. It is a key international development assistance program for DFAT and the Australian government and you may have heard recently in the lead up to the elections. But even post-elections, this is something Labor is keen to continue with and grow further as well. So FIF, they're a key player there. They have 4,500 workers approximately under the scheme. And the scheme itself is broken into 2 parts: the short-term element and the long-term element. The short term means 9 to 12 months and the long term means it's 3 to 4 years. The majority of those 4,500 are under the long-term scheme. So that is surety of employment that they gave under that long-term scheme, which is fantastic. So there's round about 10,000 workers under the long-term scheme. And as I said, it had 4,500 of those. So it's a significant share of that long-term scheme. And that is the scheme that they're really looking to ramp up over the coming years. I've said those workers are strongly locked in for that 3- to 4-year period. The head office for FIP is here in Brisbane, but they have corporate offices across the country and have representation in all of the states, apart from Northern Territory. So we'll move on to the rationale, and this is the key part of today's presentation. Why FIP for us. It's at-scale international starting solution. And that at-scale piece is really key. So when you look across our verticals, particularly the industrial vertical and the health care vertical, then our clients are calling out for staff. We are providing more resources, talent to them than we ever have, but we -- they're asking for more. So we really needed to look at that solution that could provide at-scale those resources to meet the demand of our clients that are in defensive sectors. So these sectors are going to continue to grow, and FIP really provides us. They've been doing this for years on the PALM Scheme. They're well regarded by the facilitators of the PALM Scheme. So we see it as the engine room that we can take all of those learnings over many years that they've gained to really accelerate that growth, not just in food services, which is a key defensive sector for us, and we'll see that continue to grow, but also in the health care sector as well as access to carers, whether that be in aged care, whether that be in NDIS, whether that be in health, it's a key growth area. And again, it's something that has been flagged by government. They would like to utilize the PALM Scheme to bring those carers in and meet the demand, that massive demand for resources that we're seeing in that health and community vertical. So it's the interim, it's that experience. To set this up from scratch would have taken time. A lot of time, we are, organically, we have got ourselves in the PALM Scheme, but you're talking years to really build up reputation with the facilitators, but also just setting up the infrastructure in country as well because the PALM Scheme crosses 9 Pacific countries as well as Timor-Leste, so it takes time. We've got that today. The engine room is there, and then we can grow. When DFAT came out at the end of last year, flagging 55,000 people that are registered across the Pacific Islands ready to come into Australia. So there's massive opportunity there to scale up. When you look at the long-term program, currently has 10,000. If you add in the short-term program, it's a total of just over 20,000. So then there's an additional 55,000 on top of that. And as said, government really do have the appetite to grow the program. And you can see as it comes up on the next slide, just the growth trajectory so far in the PALM Scheme. And I think the other element to note as well that there are interested players already on the PALM scheme. So having had great discussions with government on this, and there is desire immensely to have a player of our size and our ownership to be involved in the scheme as well, particularly as they look to scale that up and broaden it across other sectors. And as you're aware, PeopleIn, we are diverse. We are operating across a number of high-demand sectors. And the ability for us to work with government there run pilots, et cetera, we believe is there, and something we will know that the acquisition is near complete. Something we're much focused on to have that engagement with government and really look to ramp up our exposure to PALM, but most important thing is providing those resources to our clients to meet the massive demand that they have at the moment for talent. So I will pause there, and we'll open up for any Q&A. And there's a bit to digest both in the announcement, and then what I just went through, so happy to set up calls as well over the coming days. But if there's any initial questions, then please send them through.

[Operator Instructions]. Your first question comes from Elijah Mayr with CLSA.

Ross and Tracy, congrats on the acquisition.

Thanks, Elijah.

Just a couple from me. Maybe just starting with the business as it is. The 4,500 workers they've currently got, how many of those Pacific Islanders are involved in the PALM Scheme? Is that all of them or just the sort of majority?

Yes. So it's probably 100 that are not Pacific Islanders. So yes, the vast majority of that. So 4,400 Islanders.

So if we look at that, I guess, and because the chart was sort of suggesting there's, what, 23,000 or so PALM operators in Australia or labor operators in Australia. So you guys, Food would have around 20%. Is that how we should think about your access to the incremental 55,000 that will come over the coming years?

Yes, it's just over 19% there. And clearly, this is something with DFAT on, but we wanted to acquire a team player that have a big engine room that we could scale up because they've got the infrastructure to be able to do that. And that is noted by government. So moving forward, we feel that we can contain high percentages of the PALM Scheme as it grows. And particularly given we're not just in the industrial space or the food services space, we're also in the health space as well. And when you look at that 25,000, I think there's only 100 or so that are currently in that health space. So given our domestic exposure there, we think we can work with government to ramp that up, which may potentially give us more market share of the scheme.

Yes. I guess with that 55,000 that have registered, did they give an indication of how much of that is for agricultural work, how much is for health care-based work and other?

No, they don't. And some of this range is from your unskilled, your low-skilled and your semi-skilled. And so some of those could be utilized across a number of sectors, but no, they don't set any sort of target percentages across that group of people.

Yes. That's fine. And then maybe just a couple on the financial side of things. Pro forma of $9.5 million EBITDA for '23. Can you give us an indication, I guess, what margin that's operating at?

Yes. So the revenue is $220 million that's round about 4.5% margin.

Yes. And can you give me just an indication of what they were doing, I guess, last year? Albeit there probably some impact from COVID just as a comparison within FY -- what they expect to do in FY '22, I guess.

Yes. So they've had some solid growth over the last couple of years, and we can get back to you on exact numbers there. But I said it had good growth, double-digit growth over the last 3 or 4 years. So probably had a slight impact, but also the demand is there. And this being a government scheme, then they're facilitators of the scheme including Visa, et cetera, to support a 403 Visa to make sure that they can still come in. But clearly, just the practicalities of COVID and flights had an impact, but there's definitely been compound growth over the last 3 to 4 years.

Yes. And then maybe just one final one, if I could. Just in terms of, I guess, the assumptions that are going into that $9.5 million in FY '23. Are you assuming that you take some of those 55,000 registered? Or is this sort of based on what's in the current pipeline?

Yes. This is based on what's in that hopper, Clearly, in the earn-out, which I said is double-digit growth for each year, then that will be assuming other individuals coming into the country. The $9.5 million is based on what they have and what's in the hopper already. And the good thing about this, it's long term. We employ them. We are the sponsor under the 403 Visa, but then we engage with the client and secure that long-term employment for them over the duration of the deal so that 3 to 4 years. Elijah, I appreciate the questions.

Your next question comes from Ken Wagner with Petra Capital.

Look, congrats on the acquisition. Look, just a couple of questions for me. On the EBITDA multiple paid, 4.7x, sort of the higher end of historical range for you. Just curious around the thinking about around that multiple. I'm assuming because of that scale and there's opportunities to grow this given the pipeline of the labor numbers that you've highlighted, is that the reason for the higher than usual multiple? Or are there other things that we need to think?

No, that's right. I think you touched on the major things there. It's scale, it has the infrastructure that they've built up over many years to be able to do this at scale. Also that growth opportunity, particularly into other verticals for us, which have been flagged by government as well. And then the longer term piece, the fact that these individuals are locked in for a period of time with the client, that longer-term sort of predictability of earnings as well.

Yes. Make sense.

And probably worth mentioning, Ken, as well with the earn-out and all of that, we've been under 5 as well. So this is, we've always flagged that 3 to 5 range. And even including the double-digit growth in order to those additional funds, the $25 million, then it still will be within the 3 to 5 range.

Yes. Got it. Got it. Okay, that makes sense. Second question, and well, I think necessarily want to move on to the next acquisition, given you've just done this one. But just curious as to the funds available. I think you had $40 million available at the half, $35 million cash has gone here, you would have had cash in the door. I'm thinking maybe $20 million to $25 million would be sort of the number that you've got left for future acquisitions at this point? Would that be about right?

Ken, we'd obviously talk to this in a few months for the full year, but we flagged the Board is comfortable up to 1.5x even ability to go further for the right deal. This takes us to 1.1. So there's still money in the tank for strategic acquisitions. And obviously, we'll talk to that more at the full year, particularly with the overlay after our strategy review as well. Looking at -- but needless to say, the pipeline continues to be strong as well, which is good.

Your next question comes from Ian Munro with Ord Minnett.

Ross, Tracy, congratulations on the acquisition. Just a couple of questions from me, please. Just firstly, perhaps, are you able to run us through the revenue mechanics of the acquisition, who's paying the bills? It looks like there's a sort of transition of funds involving the government. So just curious to understand how that looks like.

Good question, Ian, and good morning to you. So the revenue through from our side is directly from the clients. So this is how it works and we can go in for that in a way that if a detail of it helps. So basically, government facilitate us engaging with those potential employees in country. And then we take it from there from a testing and interview point of view, et cetera, than giving them, obviously, handing a job before they jump on a plane. When we get them over here to Australia and then do all that formalization, well-being to get them up to speed. And then the transition, obviously, or start employment. So the revenue for us comes from directly from the clients. One of the pieces that was flagged, however, by Labor was potentially paying the inbound flight which again, just supports from a working capital point of view. And that's something we would welcome. But at the moment, that is just passed on to the client and the client pays that through that fees that we charge. So we employ individuals and then, obviously, charge that on to the client.

And so in the instance of the client being actual employee, are you able to give us a sense of the number of, I guess, end customers at the other side of the platform in terms of food and agri companies, perhaps even odd years to what they're up to? Is this primary production? Or are you talking about second market?

No, no, for sure. And just to clarify, we employ the individual. So we are the employer, and we are the sponsor through the 403 Visa. But for all intents and purposes, we have our employee, and then we have our clients. So we've got 90-plus clients -- or 19-plus clients. 75% of them are in the food services manufacturing space and then the balance is across agriculture and transport as well. So we've got a couple of contracts for defense contractors in that transport logistics area.

And just in terms of your comments around the labor government look to be -- became to accelerate this PALM Scheme, are there any sort of regulatory milestones? Or I guess, things in the calendar that we need to keep an eye on in terms of labor accelerating this program?

No, the mechanism is there. The 55,000 people are there. It's probably just additional resources to process that volume of people. So there's no additional reform or any key milestone from a government point of view. We are waiting for any decision. I'd say they flagged that they want to grow. From everything we are hearing from our channels is they want to accelerate it and also expand it. As we talked about, that's good for us, particularly into the health and community space. So no, it's just -- it's a resource piece. And we're engaging directly with the PALM Scheme as well as government. And as I said before, they welcome us as a big player, a listed player to enter the space to support the acceleration of the program.

Very good. And maybe just a final one, please, for -- perhaps for Tracy. Just with respect to the cash generation from the acquisition and the conversion, is that comparable with the existing infrastructure of the business?

Thanks, Ian. Just in terms of -- it's actually in terms of the DSO here. We're looking at around 30 days. So it's actually quite good.

The program's done now, Ian, which is good. This is not leading anywhere at 38 days.

Yes, exactly. That sounds accretive to cash generation. Congratulations again.

Thank you.

Thank you. Appreciate the questions.

Thank you, your next question comes from [ Ben Wilson ] with Wilson's Advisory.

Congratulations, Ross and Tracy. Just a couple of additional questions. You've mentioned food processing was a key target sector. Just wondering if you're likely to continue looking for acquisitions in this space or adjacent sectors or if you'll be sort of refocusing on the higher-margin technology and health care community areas.

Yes. And [ Ben, ] we'll obviously provide a bit more at the full year. Let me just talk through the strategy so you have full context of what we're looking to do over the coming years. But I think initial response to that, that this is -- it's a big deal for us. There's a lot of opportunity. And as a leadership, we want to focus on that and make sure we draw the value both for FIP and support their growth but also leveraging that engine room that we have now to grow at other verticals, particularly in the health and community vertical, but also within the industrial verticals like logistics, et cetera. There's opportunity there and early learning as well.

Sounds good. Also just on the earn-out, I was just wondering if you're able to say specifically what the thresholds are. You mentioned double digit. Can you share a little bit more exactly what they are or?

No, we never publicly set those because we set budgets as well within the team. And clearly, we want to drive the business forward. So we never formally go out, but I'd say they are strong EBITDA targets that we believe the business can hit. Clearly, we always want that to be achievable. But yes, I'd say double-digit growth there.

Your next question comes from Chad Mikhael with Baron Barrenjoey.

Well, I'm frantically reading about the PALM Scheme this morning. And I guess one of the things that's already changed, there were some changes made to the PALM Scheme in April. It looks as though they've streamlined the PALM Scheme. But also there are aspects with regards to the expansion of it in and around the removal of things like Visa caps in other companies with a good track record. So maybe just a couple of questions. What does it mean to have a good track record? Is the business you acquired, did it have that track record and relationship with the providers? And also, have you thought about how this could potentially expand, whether or not the labor government gets involved in the near term or not, how this could expand in the short term for your business once you've consummated the deal?

Yes. No, I definitely consider that. And pre-today, there's been a lot of discussion and thought going into that combined growth plan. We flagged that before with the Perigon acquisition, and there was no difference here as well. And to your first question around what seems to be good, it's really that track record around how you audit the well-being welfare of the business, the infrastructure that you put in place to make sure that, that happens. Governments or the PALM Scheme and the facilitator of the scheme they do a series of audits regularly. So that is to check how you are going and there's that constant feedback with them. And they wouldn't have got to 4,500 or 19% of the total program, 40% of the long-term program, if they weren't good at what they're doing and have the infrastructure in place to do that. And that was a big part of moving forward with the acquisitions, to get a solid player that's doing this well that then gives us that engine room to scale up. Then to the second part to add around the key growth areas that we see on the people inside. So health care being one and particularly that carer space that we've been able to bring into aged care, NDIS and to hospital works. And then the other element to that is learning as well. We do see that as a potential opportunity there, and that would be something we want to discuss with government as well. And both of those areas, just such a high demand at the moment. There's just not the resources to meet that demand. And again, that's why we wanted to find that engine room that was well respected, that we could then turbocharge for FIP. And then to charge their own growth but also support our organic growth as well.

And just to help us wrap some numbers around that, can you give us some perspective on how FIP was growing over the last couple of years? It sounds intuitively like it's been kind of double-digit growth there. And looking forward, it feels like there's the opportunity for continued double-digit growth if we use maybe EBITDA as the metric, which you provided numbers around it in the presentation.

Yes. So yes, confirmed digit growth for them. We foresee that continuing and, hence, the commentary around the earn-out as well. And then that's supporting the PI business as well for that 10% organic growth as we go into the new financial year.

Thank you. There are no further questions at this time. I'll now hand back to Mr. Thompson for closing remarks.

Great. Thank you very much, and thank you again, everyone, for your time. So we're really excited to share this news with you this morning. We feel that FIP is a fantastic engine room for us to support both their growth, but also the further growth of the PI business as well. I know there's a lot there to digest. And Chad, as you said, you've been tuned into the PALM Scheme this morning. So after you've had time to digest all the information that we went through just now, but also in the announcement, then feel free to reach out to either myself or Tracy and have a discussion and go through it in a bit more detail. But we're really, really excited about what this means for the future growth of the business. But thank you very much for your time, and I hope everyone has a fantastic weekend. Cheers.

Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.