Peoplein Limited (PPE) Earnings Call Transcript & Summary

Thank you for standing by. Welcome to the PeopleIN Limited Investor Conference Call Fiscal Year 2022 Full Year Results. [Operator Instructions] I would now like to turn the conference over to Mr. Ross Thompson, Chief Executive Officer. Please go ahead.

Thanks very much, and good morning, everyone. Thanks for joining us, and I'm joined here by our CFO, Megan Just. So welcome to our FY '22 results presentation. PeopleIN is a business built on a simple yet powerful purpose, to inspire excellence in our people. We're only as good as the people we have in the business, which is 850 permanent staff to date and the contractors that we provide to our clients, which in a 12-month period is around 30,000 people. So we're a sizable organization. But as I said, it's a purpose that is simple yet powerful. Now I would like to cover off the key highlights from the financial year and also talk about our outlook moving forward. So a record result for us. We're ahead of guidance, delivering $682.4 million in revenue, which was 53% up on last year and a normalized EBITDA of $47.2 million, which was 23.9% up on last year. So fantastic result for the business. We also delivered strong organic growth, 15.9% to revenue and 10.5% to normalized EBITDA. Our performance was underpinned by our diverse reach into high demand and defensive employment sectors, including health care, professional services, early learning, infrastructure and food services. And I'll touch on this point in more detail later on because it's really key when we talk about our outlook moving forward. Fantastic cash collection for the year. Our conversion was 99.5%. At the half year, you may recall, it's around 91%. So we're up on the half year and really anything that's high 80s, early 90% is great for our industry, particularly given that we're a growth company and the cash that we need in working capital to continue to drive that growth. Solid performance from the 4 brands that joined the family in FY '22. So Vision, GMT, Paragon and then FIP, who joined in June and their total contribution for the financial year was $6.6 million, so above our expectations. M&A pipeline remains strong with a focus on health care and community and professional services government contracting. With a strong cash collection, we've got balance sheet capacity of around $30 million to execute on a strategic opportunity in financial year '23. Operating conditions continue to be positive given the strength of the employment market, 3.4% unemployment at the moment and unprecedented demand from clients that are operating in defensive sectors. To the point that they have a summit next year to talk about the talent issue and how to attract more talent into the country. And clearly, we are well positioned to support our clients with finding that talent moving forward. We launched our 3-year strategic plan, which is an evolution on the plans and prior years with a focus on cross-selling international recruitment and the continued investment in an international nursing network. Our FY '23 earnings guidance with normalized EBITDA of between $62 million and $66 million based on the continuation of current economic conditions. I just wanted to pick up a couple of points on this slide. First is around EPS, it's a $0.323, that's up 19.8% on the prior year. Final fully franked dividend of $0.065. That's $0.13 for the whole financial year, which is up 23.8% in the prior year, a continued strong return on equity of 24.9%. And then again, strong organic growth in the business, the EBITDA line, 10.5%. It really takes us to the next slide where I wanted to spend a bit of time going through the organic piece, but also touch on our acquisition model. So as you said, at the revenue line, 15.9% organic growth, 10.5% at the normalized EBITDA line. And this is a real testament to the entrepreneurial culture that is in the business. That's one of the reasons why I wanted to join the PI family 10 months ago from our leaders and all of our staff, just that real drive to grow their respective businesses. And I wanted to call out the brands at the bottom of this slide. So these are all organic brands. I know it's easy to look at PI and think that every brand, we've acquired those, but there's a number of those that we've actually invested in strategic organic initiatives. And I'll call out a couple that were established in financial year '22. So that's Next in Health and AWX Executive, both are permanent recruitment businesses and both performed in the financial year. And again, it's a strong testament to that entrepreneurial culture within the business and the environment that we create to allow our staff to really push and go above and beyond. But we'll continue to acquire and our acquisition model, I feel, from my experience, is a unique one because it's less about integration and more about enablement. How do we enable our acquisition partners, new family members to grow, it's the first discussion we have [indiscernible] what's your growth plan, what would you need from us to accelerate that growth. And just to pick up an example of Halcyon Knights, joined the family in 2019, and then 3 years on, they've more than doubled in size, which is absolutely fantastic to see. And all of those points will come back to that strong return on equity of 24.9%. Now I would like to hand over to Megan to go through the financials in a bit more detail.

Thanks, Ross. The annual results for this financial year has continued on the growth pathway that we've been delivering on for the past 5 years. This growth has been derived from strong organic growth, supported by strategic acquisitions. We believe that our financial results demonstrate the diversity of our 3 verticals and the high demand for employment in the sectors our clients operate, ensures that we have the predictability in the performance and the ability to deliver strong returns to our shareholders. For the current year, revenue is up 53%, EBITDA is up 24% and NPATA is up 28% and EPS is up 20%. The normalized EBITDA contribution was $47.2 million from revenue of $692 million, being an increase of 24% from last financial year. We've been able to maintain EBITDA margins of 6.9% as for the first half of this financial year compared to industry averages of approximately 3%. We have seen significant demand for services across all of our divisions this year. Permanent recruitment has shown strong results from our professional services vertical in high-demand roles, in both the finance and technology space, whilst also enabling us to commence to new brands in the other verticals. Through our on-hire workforce, there's been significant demand due to our clients struggling to source their own workforce. There has been some impact from COVID restrictions, mainly in the first half of the year; however, they are now experiencing higher volumes given the restrictions have eased. Our 4 acquisitions during the year have all performed well, contributing $6.6 million in EBITDA to the group since the various acquisition dates. All are performing as we forecasted or better. The investment that we've placed in our shared services functions earlier in the year, enable these brands to be quickly supported allowing the incoming management team to focus on the top line revenue growth and the integration of these into the PeopleIN Group be performed in an efficient and coordinated pace. Cash flows from operations have been outstanding this year with normalized operating cash flows of $30.8 million. The most significant normalizations relate to the settlement of payroll tax deferrals obtained as a result of COVID with the final payments occurring during the year of $2.5 million and $5.1 million in relation to the acquisition of Food Industry People Group, which occurred late in the financial year in June. Our net receipts from customers is $46.9 million compared to normalized EBITDA of $47.1 million, resulting in a 99.5% of our EBITDA being converted into operating cash flows. Normalized operating cash flows were $30.8 million compared to normalized NPATA of $31.9 million. Our dividend declaration of $0.065 being a total of $0.13 for the year, reflects our confidence in our ability to maintain strong cash flow practices and results into the future. Our results are supported by a strong balance sheet. We have communicated in the past that we would increase net debt to 1.5x for the right acquisition, which occurred in June 2022 with the acquisition of Food Industry People Group. This has increased our net debt position to $71.4 million. The acquisitions of Vision, Paragon and Food Industry People Group were all funded by commercial bills. With these -- with the annualized contribution from Food Industry People Group, the net debt-to-EBITDA would be 1.1x. We are still in a strong position to undertake future acquisitions. This has been estimated to be approximately $30 million based on maintaining gearing of less than 1.5x EBITDA. Debtor days has improved significantly at 33 days being a reduction from 47 days. The sophisticated client vetting and methodical debt collection procedures have driven this reduction, continued focus on the collection of debtors and driving these days down remains a focus, both operational and finance staff collaboratively. There has been an increase in capital expenditures through this financial year has come from 3 main sources: being the acquisition of leases through the entities acquired, the increase in the number of surveys employed and the corresponding equipment requirements and then the commencement of our systems upgrade program. This program is to support our investment into our systems and processes to continually improve our service delivery internally. This program works, will continue into the next financial year, as we roll out across the entire group. I'll now pass back to Ross to provide an update on our strategy and future outlook.

Great. Thanks very much, Megan. So PeopleIN has a broad reach into high demand and defensive employment sectors, which provides mitigation against any potential changes in macroeconomic conditions. There's a lot on this slide, but I did want to pick up on a couple of key points, and then you'll obviously be able to go through it in a bit more detail. So the first on professional services, which our EBITDA mix is 35% tied to professional services with our 2 major brands there, being Halcyon Knights and Paragon, who joined the family in February. When you look at their client base, majority are blue chip, so that the major banks, super funds or large international tech companies, who will continue to invest regardless of what's happening in the sort of macroeconomic challenges. And we're not seeing any slowdown in that space. And then when you look at what the Australian government have posted recently around the tech sector, in particular, and they have announced that commitment -- joint commitment with industry to achieve 1.2 million tech jobs by 2030. When you look at professional services broadly and out to 2026, then there's a projection there for an additional 206,000 jobs. So we believe we're positioned with those blue chip clients and also the roles that we are filling and supporting for our clients that they are defensive and they will continue to be that longer-term demand. Looking at health and community vertical. There's a strong demand for nurses globally. Australia is definitely Robinson Crusoe when it comes to needing more nurses, whether it be Canada, whether it be in the U.K., whether it be the U.S. So there is a global long-term demand for nurses. PeopleIN being one of the largest providers of nurses on the East Coast, again, well positioned to continue to support our clients to find those nurses in the health sector, in NDIS community space, in aged care, but also looking at how we can leverage our experience internationally to continue to bring those nurses into Australia by setting up and continuing to invest in that international nursing network. But also how we leverage our experience now on the PALM Scheme with FIP joining the business in June, but also government been very clear in their commentary around diversifying the PALM Scheme into health sectors, including aged care. And those are discussions that we are having about how we can leverage our size to support them. And then to our third vertical of Industrial & Specialist Services, which between the 2, 23% against Industrial, 19% against Specialist Services. This is our most diverse vertical when it comes to sectors, hence highlighting the mix within the ISS division there. And as you can see, a number of the sectors, but sectors that are defensive in nature, whether that be food services, early learning, renewable energy or infrastructure projects, given the government's commitment over the next 10 years to invest in infrastructure across the country. And we are working on those projects at the moment, and we will continue to work on those projects. And when you look at the outlook in a number of those sectors, all are showing double-digit growth over the next 4 years for their requirement to meet the needs that they see with projects and investment that's coming through. So as I said, PeopleIN has a broad reach, into high demand defensive employment sectors, which does provide mitigation against any potential changes in macroeconomic conditions. I wanted to share our strategic plan. And again, there is a lot on the slide. So there is a fair amount to digest, but we're also looking earlier than in the year -- sorry, later in the year, setting up an opportunity to take everyone through this in a bit more detail, so probably at the end of October so we can run through that in detail. But I did want to highlight a few points today. So the first is around our complete talent solution, which we believe is unique to PeopleIN and is a real selling point our clients. And that's made up of 4 key elements, and it's the wheel that you can see. So the first part, that advisory and management. That's about getting in early with our clients and helping them develop their plans and their procedures, et cetera, which in the end, most of the outcomes there are recommendations to our clients that they need people whether that be permanent or contracting staff. So that's where we pass the baton to our engine room, which is staffing services across the 3 verticals of health care and community, professional services and industrial and specialist solutions where we're providing permanent recruitment and contracting services predominantly to our clients. And then the third part, upscaling. This is about security of candidate supply. Obviously, it's a challenge at the moment in finding people. And part of this is what create that supply by training. So either using our own training organization, Australian Health Care Academy for the health care vertical or partnering with training organization so that when people get trained, we can find them a role, especially into high-demand positions. And then in the center is innovation, enabling that innovative thinking to support all of the services that we provide, including technology. And you would have seen a couple of months ago, very fortunate to have Vu Tran joined the Board, excellent director, but also given his experience with Go1, he'll help us navigate that journey, especially over the next 3 years, as we look at technology and what does that mean when we talk about technology-enabled talent services. Our goal to be the leaders in the provision of a complete talent solution that enables our clients and candidates to achieve excellence. What the success look like in 3 years' time, is that ongoing annual 10% organic growth, continuing to acquire some complementary accretive acquisitions, 7%-plus EBITDA margin, which would be well beyond industry leading, which when you look at IBISWorld is around 4%, leading employer of choice, employee engagement 80%, 20% of government works are really getting that up from where it is today. And hence, that acquisition focus on professional services contracting for government. And then that global international health network and then the industry-leading safety compliance. I'll just pick up on a couple of initiatives. I won't go through it all because of time. But under the people side, continuing that laser-like focus on well-being and safety initiatives for our staff, including one employee assistance program for all of our staff, which is 850 today. And then that ongoing awareness training. Under the client side, so continuing to invest in that global health care worker nursing network, focus on client engagement, so our top client at the group level, but within each of the verticals as well and that regular engagement and also identifying key target clients that we want to focus on, promoting cross-selling. So the 4,000-plus clients that we have, especially when you look at professional services, they all have a need, they all need accountants, they all need IT staff, et cetera. So being able to cross-sell and introduce Halcyon Knights, Paragon to those clients that our health care teams working for or our industrial teams working for and leveraging that goodwill. And then grow our defense, federal and state government advisory and contracting capability. Under innovation, automate low-value process to maximize high-value human interactions via our systems upgrade program, which is program unite. And then under shared value continuing that focus on our 3 pillars: First Nations, pillar 2 sustainability, pillar 3 equity and inclusion. So I've talked about our defensive sectors and long-term high demand sectors, talked about the strategy for the next 3 years. So what does that mean from an outlook? The low levels of unemployment and higher turnover of our clients' employees continue to drive high demand for recruitment services. Wage inflation is driving high margins for us. Our diversity of clients and critical demand for services mean that the core business is resilient in times of economic uncertainty. We'll continue to pursue initiatives, which address labor supply shortages through international recruitment and upskilling as well as cross-selling opportunities across our 4,000 client base, as I mentioned earlier. We'll continue to align with the Australian government to work with them, partner with them and how they bolster the country's workforce, including leveraging the footprint, the pan scheme to solve critical labor shortages in aged care and community services and those discussions are ongoing at the moment. We'll continue to reward the strong performance of our people through a competitive performance incentive program. We'll continue to drive a strong cash and cost discipline across the group, including leveraging the scale of the business now. And the M&A pipeline remains strong, that focus on health care and community and professional services, government contracting. And our balance sheet capacity, as Megan said, around $30 million to execute on strategic opportunities in FY '23. So then to conclude, just to run through the key highlights from the financial year just gone, so record performance at the revenue and profit line. So 53% up for the revenue line, 23.9% up at the normalized EBITDA line. Strong organic growth, 15.9% of revenue, 10.5% to normalized EBITDA. Our performance is underpinned by a diverse reach into high demand and defensive employment sectors, including health care, professional services, early learning, infrastructure and food services. 99.5% of our EBITDA was converted. That's an outstanding result by the team. Absolutely brilliant. Solid performance from our 4 brands that joined the family in FY '22. So that contribution of $6.6 million between Vision, GMT, Paragon and FIP. And the pipeline remains strong. And as I said, that focus on health care and community, professional services, government contracting with around $30 billion to execute on any strategic opportunities. Operating conditions continue to be positive given the strength of the employment market and unprecedented demand from clients that are operating in defensive sectors, which is the key, that long-term demand. We've launched our 3-year strategic plan, which is an evolution of previous plans with that focus on cross-selling, international recruitment and the continued investment in an international nursing network. And our guidance for the new financial year, FY '23, normalized EBITDA of $62 million to $66 million based on the continuation of current economic conditions. So again, thank you very much, everyone, and we'll move to Q&A.

[Operator Instructions] Our first question comes from Ben Wilson of Wilsons Advisory.

Congratulations on the strong results. I just have a couple of questions. Firstly, a couple of macro questions and then just one on EBITDA margins. Just the macro one to start with. Just would be keen to hear a little bit more from you on job vacancies and inflation. You've spoken a little bit about obviously, record levels of job vacancies at the moment, which is obviously net positive, notwithstanding the constrained candidate market. There is a lot of speculation though, about the impact of the RBA tightening cycle will eventually have on the unemployment rate and job vacancies. But just beginning to hear your thoughts on how you -- also don't have a crystal ball, but how you see that playing out for your key focus sectors over the next 12 to 24 months. And then also just regarding inflation, as you said, you're a net beneficiary of wage -- wage inflation across your external worker base, but it's a bit hard for you to pass on inflation on your internal in workforce. So just wondering what the net impact of wage inflation is like at the moment? And if general inflation across the rest of your expense base is having much of an impact.

Thanks very much for that. And as I said, the majority of our sectors are defensive. So we are in a good position because regardless of those macroeconomic potential headwinds, then the majority of our sectors are going to continue to require staff, and that's that long-term demand, whether it be health care, whether it be in professional service space for the blue-chip organizations, including global tech businesses. And then in the industrial side, whether it be food services, whether it be the early learning space or whether it be infrastructure. So for us, across the majority, then we see they're going to continue to need that demand. And to the point the government is holding a summit next week focused on how to bring more people -- or one of the key areas will be to how to bring more people into the country. So clearly, they believe in those defensive space that there is that longer-term demand and the need to bring industry and all parties together to try and come up with a solution for it. So as I said, for us, over the next 12, 24 months in the majority of the sectors in which we operate, then we believe that there is that continued demand there. Clearly, there may be some other areas that we need to react to, and we will. But like we've demonstrated in FY '22 with our results, the diversity of the business will allow us to continue to grow. Then with regard to inflation, I would say the net -- there's a net positive benefit with us. So we have 850 employees. And clearly, we're managing the salary cost base there. We're also utilizing shares and other elements and bonus schemes, et cetera, to keep that permanent cost or fixed cost base down, but 850 versus 30,000 plus contractors that we have employed at some point during the 12 months. And on a weekly basis, we are payrolling now between 10,000 and 15,000 contractors. And as you know and you alluded to in your question, with that, those our commercial agreement with clients that if there is a salary increase, then obviously, that increases our dollar margin there. So definitely, we see that being a net benefit to the business.

Our next question comes from [indiscernible] CLSA.

Congrats on the results. Just a couple of questions from me. Maybe just starting with the guidance. Can you sort of maybe talk to and I guess, the organic part and the nonorganic part of the guidance. I think historically you've talked to the sort of core organic growth in '23 of 10%. Is that still the case? Or is that changed with the environment?

Yes. No, I mean it's a good question. So you look at that $62 million to $66 million, then that's an organic range between 7% and 15%. So the middle point would be that 10%.

Yes. And does that include expected uplift from PALM? Or I guess what are the assumptions you've sort of...

Both in the FIP business. But as we said at the point of acquiring FIP that part -- this is having an engine room to support organic growth in other parts of the business, including our health care vertical, but also our AWX business. So yes, it does. And even the business has been part of the family now for a couple of months, and we have seen some of that benefit start to flow through as well, given it really is an at-scale solution.

[indiscernible] food industry people. I think when we chatted around the acquisition, that has an expectation FY '23 of revenue of about $220 million. Just looking at the financial statements, it looks like the last 12 months, they did close to $270 million. What would you be expectation of FIP going into FY '23?

From -- expectation from revenue or profit point of view?

[indiscernible] the business, it seems like the revenue was a bit stronger according to the financial results, then maybe we add the acquisition -- point of acquisition.

Yes. And look, for us, we're not going to go into the specific details against FIP. We have obviously set budgets and other things for the business with an organization, so we don't want to confuse. But with them, as we said at the time, we would be expecting that growth -- so double-digit growth in the business in this financial year and next and obviously have a line there now to that as well.

Yes. And maybe just a final one, a financial question. Just with the CapEx expectations, there's obviously been moving parts with some of the acquisitions. Can you maybe give us some guidance on CapEx expectations for '23 and maybe the expectations for '23.

I'll pass over to Megan, so you can hear another voice.

So with the CapEx, the main requirement is going to be with the program of system upgrades that we -- so we spent a bit over $1 million on that in this current financial year. It will probably tick up to about $3 million in FY '23. The other -- the acquisitions with the leases. So the acquisitions we did this year, they had existing leases in there. We are looking at a bit of a consolidation program there to get our volume of leases down. And then the other component is the Vision Surveys so they had a significant increase in the number of surveyors that they have. That's a permanent workforce. So each surveyor gets kitted out when they commence. So given that increase in volume, so look, I don't think that they're going to continue with that same growth that they saw in this financial year in a number of employees.

I guess, year-on-year, maybe again around that $4 million to $5 million in FY '23 for CapEx?

Yes.

And D&A?

Yes. Sorry, you just broke up there. So depreciation and amortization, yes?

Yes. Just -- I'm conscious that a couple of acquisitions that came through at various points in the year so just looking at a run rate for '23.

Yes. So depreciation will tick up a bit as a result of those leases, particularly the FIP one coming in late at the year. And then obviously, the amortization will -- it will go up slightly, but we are coming towards the end of life for some of those early on with AWX and admin. So it won't kind of exponentially go up.

Our next question comes from Liam Schofield of Morgans.

Can you hear me clearly?

Yes, I can hear you. It's been breaking up a bit. But yes, you're fine, maybe that's good.

Perfect. Two questions. Just on the potential impact of increased migration. Obviously, a lot's been made of that potentially increasing. Obviously, under the current environment, perhaps some employers have driven more of the agency route. Plus, you've got rate growth playing off against workforce changes. How do you think about those impacts? And secondly, just on the contingent consideration for Halcyon Knights, when do those shares get issued? What do they get issued at? And how does that all work?

Yes. We will cover off the HK when I'll pass to Megan who will take you through on that. But with the migration piece, that is a positive. We flagged at the half year that there's going to be a real focus in the second half on international recruitment, which we did. But one of the key challenges there was Visa processing times, they're still significant. We have started to see them come down in the last month. But what we saw at the half year, didn't venture, particularly when you look at our health care and community business, but as said, that's starting to tick up now to give you a bit of a flavor for that health care business, which will be predominantly nurses than pre-COVID. We had circa 1,500 nurses that were international nurses as part of our workforce. Since the Board has opened, we've built that up to 333. So there's still a gap there to go. So there's still a lot of room to get back to pre-COVID for us. And -- but given our focus on international, we want to obviously surpass that and be that employer of choice for whether it be nurses in Ireland, the U.K., Canada, et cetera. So it's a real focus, and you would have seen it. It's a clear flavor in the strategic plan for the next 3 years around that international side. So overall, we see that as a positive. Obviously, with the summit next week, then we're having discussions with government, industry bodies and others around these particular initiatives, et cetera, to really fast track that international side because there's such a huge demand there, and it's a long-term demand from defensive sectors, as we've talked about already this morning. So then on HK?

So just on Halcyon Knights, the final earn-out is it will be paid probably next week. It's based on a fixed number of shares per the agreement, which is just a tick over 1 million shares, and it's based on the [indiscernible] leading into 30 June.