Peoplein Limited (PPE) Earnings Call Transcript & Summary

We are running a hybrid meeting. So good morning. I'm Glen Richards, Chairman of the Board of Directors of PeopleIN Limited. Ladies and gentlemen, it's just after 11, a quorum is present. And therefore, I have the pleasure in declaring the Annual General Meeting open. I welcome each of our shareholders who is present in the room and also those who are listening to the proceedings of the AGM via the live audio webcast. Before I proceed with the business of the meeting, I'd like to introduce my fellow directors, our nonexecutive directors, Elizabeth Savage and Vu Tran; and our Executive Directors, Thomas Reardon and Declan Sherman. Also present today is Ross Thompson, our Chief Executive Officer; Adam Leake, our new Chief Financial Officer; as well as our former Chief Financial Officer, Megan Just, also in the front row, who just stepped down as CFO on the 1st of December -- actually steps down at 1st September, but remains engaged with PeopleIN on a consulting basis for while. Also present, Jane Prior, our Company Secretary; Louisa, down the back, Louisa Di Bella of Talbot Sayer, our legal advisers; and in the front row, Michael Gauci, from the company's auditors, BDO. We also have representatives of Link, our share register. Shareholders present in person will be given the opportunity to comment on and ask questions. I will hold comments and questions until the item of business has been introduced and shareholders have been invited to then do so. In order to ensure that all shareholders have a reasonable opportunity to comment and ask questions. I request that shareholders do not ask more than 2 questions at a time just to give room for everyone else. Before we get to hearing from our CEO, Ross Thompson, who's going to provide an update on our company's activities, I'd first like to make a few comments. Thank you all for attending our 2023 Annual General Meeting. PeopleIN, Australia’s largest ASX-listed recruitment and staffing business, is pleased to report another strong full-year result, exceeding $1 billion in revenue for the first time. It’s a significant milestone, due in large part to the diversity of the sectors that we service and our ability to source candidates for our clients at scale. We payroll over 15,000 workers every week including around 6,000 Pacific workers. PeopleIN delivered another year of strong results with the business growing considerably during FY '23. Revenue of $1.19 billion, which was up 73.9% and that included an organic growth contribution of 25.6%. Normalized EBITDA of $61.1 million – up 29.5%, again an organic growth contribution of 8.3% on EBITDA. Normalized EPS of $0.37 –, this was up 14.5%, and an FY '23 total dividends of $0.14. Disciplined capital management remains a priority for the company. In FY '23 we delivered a solid cash result for the year with cash conversion of 116%, up from 99.5% on prior calendar period. Debtor Sales Outstanding of 31 days, down from 33 days in FY '22. Net Debt to EBITDA of 0.96 down from 1.98 on prior calendar period. As projected in August, FY '24, this financial year is proving to be a more challenging year, given the general reduction in business confidence and declining economic conditions. Our earnings will be impacted as a result. However, our sector diversity, strong balance sheet and cash position and experienced and commercially focused leadership team give confidence that we'll navigate this downturn and be well positioned for accelerated growth when market conditions improve. In relation to our Remuneration Report, following last year’s AGM we liaised extensively with shareholders as well as engaging Godfrey Remuneration Group to assist us with reviewing and then implementing best practice for key management personnel remuneration at the earliest opportunity. A recent proxy advisor report sent to our shareholders does not recognize the work we have done and the changes we have made to meet best practice. The proxy advisor report was based on the FY '23 Remuneration Report and a recommendation was based on a historical position that we could not unwind. Obviously, I am disappointed that the proxy advisors would not meet with us to discuss the changes we have made to our remuneration arrangements nor recognize our best practice remuneration approach for FY '24. I would like to thank our CEO and Group Leadership Team for their continuous dedication to upholding PeopleIN's position as a frontrunner in its industry. We're excited to announce that Lis Mannes is to join the PeopleIN Board following the conclusion of the AGM, who's sitting in the front row, and she will succeed outgoing Director, Declan Sherman. Lis is an experienced Non-Executive Director, bringing a wealth of operational expertise from her international career in large-scale FMCG and industrial companies, both listed and private. Critically, Lis has a proven track record in driving shareholder value by steering complex businesses through strategic, operational, and cultural challenges in highly competitive commercial environments. Thank you to my fellow Directors for their guidance and support over the past year. I’d also like to recognize the important contribution of our departing co-founder and Non-Executive Director Declan Sherman. We do wish you well Declan on your next and future ventures. The Board and executive leadership team are highly focused on delivering value for all of our stakeholders, and I wish to thank our shareholders for their continued support of PeopleIN. As a board and leadership team, we will continue to robustly debate the best use of our company resources, our capital, our time and to grow shareholder value. I'd like now to hand over to Ross Thompson, to give us an update on activities.

Thanks Glen. Welcome Lis, great to have you on board, looking forward to working with you. PeopleIN delivered another record performance for FY '23, despite varied challenges, including a downturn in the technology sector and ongoing candidate supply challenges, especially in the health sector. Our success was due to the commitment of our team to consistently deliver, as well as the diversity of our reach into high-demand employment sectors. However, as flagged in August, FY '24 is a more challenging year given the significant decline in business confidence across multiple sectors and declining economic conditions, due in part to higher interest rates. As reported by analysts, the staffing industry is being impacted by this decline and several of our peers have reported substantial reductions in their earnings for FY '23 and then further reductions in Q1 FY '24. At PeopleIN we delivered over 8% organic growth in FY '23, well above most of our competitors, but we’re not immune to deteriorating conditions and in FY '24 our earnings will be impacted. We've already experienced this in Q1 with many of our private clients reducing their demand, especially high-margin roles and permanent recruitment, or delaying investment decisions, including in private health. As a result, our EBITDA for Q1 was $10 million, which is down from the strong and robust economic conditions in Q1 FY '23 where we earned $15 million EBITDA. Our Revenue for Q1 was $281 million which is an increase on Q1 last year when we generated $272 million, highlighting a mix shift towards lower margin work. As a leadership, we're ’re driving efficiencies where possible to realign our cost base in line with this margin shift. Cash collection continues to be strong as our conversion rate was above 90% in Q1. We expect the wider downturn to be relatively short-lived, especially in health, and we expect higher margin demand to improve in Q4 and into FY '25. The quality of our team, our sector diversity and our strong cash position will enable us to trade through this challenging economic climate and ensure that, when conditions improve, we can return to a strong organic growth footing. We have an experienced and commercially focused leadership team that is focused on revenue opportunities, sales, cash collection and ensuring the business is running as efficiently as possible. As most of you will be aware, I'm sure there'll be couple of questions later, the Federal Government has proposed an Industrial Relations Reform Bill that is currently going through a senate inquiry that will report back in February next year. This is a complex bill that is creating unnecessary confusion in the short term. However, if passed, we believe this will create an opportunity for PeopleIN as a large reputable labor hire business, given that we have the established infrastructure and capability to solve this complexity for our clients, especially those clients that have limited internal human resources and industrial relations resources. We've experienced this already in relation to the Pacific Australia Labor Mobility Scheme with many clients opting to use PeopleIN to source talent via the scheme, rather than do it themselves, given the high level of complexity and requirements within the PALM Scheme. Our Pacific workers are permanent employees, and we continue to grow our participation in PALM, which is good business for PeopleIN, it’s also good for our workers and their home nations given the significant social economic contribution that the scheme makes to Pacific nations. More than $60 million in wages was sent home by our PALM workers in FY '23. I'’m also pleased to announce that we were recently approved to start recruiting PALM workers into the aged care sector. We’re working with the Government on obtaining approval for the NDIS and early learning sectors as well. This is a great example of PeopleIN’s medium to long-term prospects and is one of the factors giving us confidence, our organic growth will accelerate when market conditions improve. Another exciting growth opportunity for the business is expanding our activity in the defense sector given our sovereignty status and we have a large pool of candidates to deploy across Australia including into regional areas. We believe we'll be well placed to grow substantially in this sector, especially as the Federal Government and US Government increase their spending on infrastructure and capability acquisition in Australia. In order to provide more regular updates to our shareholders, including on these growth opportunities, we’'re launching our quarterly e-newsletter. The first edition will be published this week, I hope you'll enjoy the read. As previously announced, Adam Leake commenced on the 13th of November as our new CFO. Adam succeeds outgoing CFO Megan Just. We’'d like to express our gratitude to Megan for your invaluable contribution and dedicated service to PeopleIN over the past 7 years. Megan will continue to be engaged by PeopleIN on a consultancy basis. We’'re excited to have Adam join the PeopleIN family. His vast experience, combined with his innovative approach to financial leadership, aligns perfectly with our company's goals and values. I’d like to thank our Chairman and Directors for their valuable leadership and support. To the Executive Leadership Team and all of our people, thank you for your hard work and commitment to our continued success. We look forward to updating you on our performance and operations in February, upon the release of our half yearly results. Thank you.

Thanks, Ross. We now come to the formal consideration of the matters before the meeting today. The Notice of Meeting dated 27th of October 2023 was circulated to shareholders, and I will take the notice of meeting as read. I'll now briefly outline the meeting and voting procedures for today's meeting. When you registered your attendance this morning, you would have been issued with an attendance card. Only those with a yellow card can speak and vote at the meeting, those with a green card can speak at the meeting. I'll put each resolution to the meeting for questions or comments and then put the resolution to a poll. And I appoint [ Viena ], from our registry, Link Market Services as our returning officer. Please complete your voting card when I ask you. Please note, you'll have the opportunity to ask questions or make comments in regard to the resolutions as we address each one. I confirm that as described in the notice of meeting, I intend to vote all undirected proxies I hold as Chairman in favor of each resolution. Following the close of the meeting, the results will be released on the ASX as soon as possible. I'll now move to the business of the meeting. First one is the 2023 Annual Financial Report, which contains the financial report, the directors' report and the independent auditor's report. A copy of the annual financial report was made available on the company's website, the ASX platform and was sent to those shareholders who requested it. This item of business is the receipt and consideration of the reports of PeopleIN. There is no voting on this item of business. Please also note that Michael Gauci from BDO, who oversaw the conduct of the audit is present. Any shareholder may direct questions to Michael, which are relevant to the conduct of the audit, the preparation and content of the independent audit report and accounting policies adopted by the company in relation to the preparation of the financial statements and the independence of the auditors in relation to the conduct of audit. At this time, I'd like to take any questions or any general comments or any questions for the auditor. We didn't receive any questions part of the meeting. So any questions for our auditor? Nothing online?

Not for the auditors but just a general comment on the report -- on the financial reports...

Yes, you make a general comment on the financial. But there's also a general business at the end if you want to hold that back. Sounds good. All right. So we might as well get the meeting procedures out and on. So there's no voting so no further questions on the financial report, behold the general business. The next one, given the next item of business actually relates to my reelection, I'll now hand over to Liz Savage.

Thanks, Glen. So next item of the business is the reelection of Dr. Glen Richards as a Director of the company. Glen's detail is set out in the Notice of Meeting and in the annual report. So I won't repeat those details. But of course, Glen is able to answer any questions you may have. Are there any questions? I advise that proxy votes that are eligible to be based on this resolution are displayed on the screen behind me. So please pass your votes for Resolution 1, if you've not done so already. Thank you, I will now turn it back to Glen.

Thank you all those who voted for me. Next item of business is the remuneration report. A nonbinding resolution to adopt the company's remuneration report. The remuneration report is contained with 2023 directors report in the annual report, which is available on the company's website. Further details about this resolution are also contained in the explanatory memorandum that accompanied the notice of meeting. This vote is advisory only, and is not binding on the company. Are there any questions on the company's remuneration report? I advise that the proxy votes that are eligible to be voted on this resolution are as displayed on the screen. So please cast your votes for resolution 2, if you have not already done so. We'll move on to Resolution 3. The fourth item of business is the approval for the company to grant a total of 172,414 performance rights to Executive Director, Thomas Reardon, under the company's PRP recognition of his contribution in FY '23 and for the issue of fully paid ordinary shares on vesting of those rights. These performance rights form part of Tom's agreed remuneration package and are to be awarded given that certain key performance metrics in respect of FY '23 were achieved. These key performance indicators included achievement of divisional EBITDA greater than budget and other key performance metrics around group values, health, safety and well-being of employees and compliance of laws and regulations to achieve. Shareholders should note that this performance -- these performance rights award relates to the final period of the legacy remuneration arrangements for Thomas Reardon and that effective the 1st of July 2023, Thomas Reardon's long-term incentives are based on a new structure aligned with market and detail in the remuneration report. Under ASX Listing Rule 10.14, no director or associate can apply securities under an employee incentive scheme without shareholder approval by ordinary resolution. Further details about this resolution are contained in the explanatory memorandum that accompanied the notice of meeting. Are there any questions related to the issue of performance rights under the performance rights plan for Tom Reardon. I advise that the proxy votes that are eligible to be voted on this resolution are as displayed on the screen. So please cast your votes for resolution 3, if you have not already done so. So we'll now get on to the fun part of the meeting general business. Are there any general business question. I do know we have one in the second round...

Should we kick it off?

Yes.

[indiscernible], self-funded retiree, specializing in small caps. PeopleIN has been on my watchlist for a couple of years, but I became very interested when the dividend became 10% -- yield a 10% fully franked. On the year-to-date to provide feedback on some performance. I notice that a strategic review in November '22, the Board did not feel that the share price of $3, reflected the value of the business. In late May '23, you concluded to stick with this renewed payment since then the share price is far short. I'm sure the Board views PPE as a growth company, which of course it is, but not in the metrics recognized. Looking at the commentary and the annual report from what I heard today is a huge focus on revenue growth and EBITDA growth. The [indiscernible] loved by the analysts sitting around me, who [indiscernible] removed themselves but it allows comparisons across sector. If I was even mentioned in the recruitments in the announcement of new CFO, Adam Leake, so that he is deeply entrenched at this company's culture. For healthy IPP, that grows from a mix of organic growth and acquisition. High amortization earnouts and merger costs are a normal part of this business and should be treated as such. Amortization may be a non-cash item, but it's an important component of true earnings. I've always been aware we have [ accompanied ] a feature underlying more normalized results, which generally have [indiscernible] to reflect what is going on. PPE reporting amortize, as we've heard again today, is classic in my opinion, in this direction. Growing EBITDA is meaningless unless that growth drops to the bottom line on a per share basis. Now I'll come to the metrics that I believe create shareholder value. PPE statutory EPS has been flat for 3 years at around 20%, unless this grows meaningfully the share price will continue to [indiscernible]. Return on capital has declined over the past 5 years from 15% down to 10%. This is a forward trend that needs to be reversed and that going to be difficult this year. I'm aware of that [indiscernible] it's been declining in the good signs to focus in the back. Return on equity is actually the same as it was 5 years ago at 13%, but the recent figure has been boosted by the higher debt levels, which is say, in my opinion, a little bit [indiscernible]deary here, because it's a bit too high for my fun, especially in a high interest environment, it would be great to see the debt [ blend in ]. In summary, and I'm sorry, it's a bit of a long [indiscernible] even market capitalization method without adding any intrinsic value to shareholders. In the long term, EPS, return on capital and return on equity [indiscernible] shareholder returns, and I applaud the board and the CFO and CEO to shift their focus onto improving these. And just one final comment. In FY '23 guidance was reaffirmed in May to keep underlying EBITDA of [ $60 million to $66 million ], but it actually came in under guidance slightly, not by much, wanting the marketplace is [indiscernible]. So that's another [ turbulence ]. If you give a range of guidance [indiscernible]...

Thank you for your comments. I don't think there was a question there other than the statement. I am a big fan of Warren Buffet. It's probably one of the best summaries I've heard for a while. EPS, return on invested capital and return on equity, a very important take, seriously. And we share your view that our #1 job is to create shareholder value, and that will be continually debated in the boardroom, best way to do that. And so we're not going to shoot. We're not happy with the share price. And quite simply, I think some of those metrics you've highlighted are fair coming at us. And I will say, the last 4 years in business having, across a number of industries, putting a bump in all of the hardest years anywhere in the world. We share it COVID, post-COVID the issue around how productive or nonproductive our employees are, it's all before us right at the moment. Our #1 job is to drive revenue, which we can control inside our company with our sales force and our team. Pete [indiscernible] fully engaged with our people, so they go out twice as hard and be twice as productive or more productive as we go forward. And quite simply, our job is then to manage capital and make sure that drops right through to earnings per share and obviously, improve those metrics you highlighted timely, but in return on invested capital. [ Tobby ] share that. I am a big fan of Warren Buffett, I read everything I can on how to grow value for shareholders, and we won't be trying to duffle with on that. And I still argue we are intrinsically undervalued, and we know it's a tough year, and we are a company that operates over multiyears and not just this year, which happened to be looking like that would be tough year for all businesses across Australia. So take your comments, and thank you, and reconfirm with our Board and our senior leadership team, share your focus on, let's give some performance and make sure that's dropping right through for all our shareholders.

[indiscernible].

Exactly. Right now, it's very, very good buying. And I won't be surprised this year whether with small cap and micro cap is getting hammered pretty badly. Anything that's a liquid. Everyone's out hold is looking at ASX 100 and investing in bonds. I get that. But at the same time, companies like ours are very, very good [indiscernible]. Any other questions or comments that you need for the Board to hear. So we do have a question online yesterday. [indiscernible] which is related to is the -- so I'll read it out loud. From Merian Lee, as an investor, I'm very concerned about the rumors that they may possibly be a -- possibility of a legal action against people in -- could this matter be a risk. So there is noise and rumors out there on some of those websites that promote or goes for the direct companies. Quite simply, there is no inbound legal activity at in. There are 2 outbound legal where we are pursuing ex employees of this company over a strength of trade and competing with us when they had agreed not to. So those 2 items will be pursued. And then there's always the normal workers compensation business as usual. So there is nothing inbound that we have any concerns about. And -- we've also, from Merian with some clarification about new workplace laws and likely impact on revenue and Ross has addressed that. We see that likely an opportunity for this company rather than there'll be some short-term annoyance, if the legislation gets up as already presented, but we're hearing the government is already backing off a bunch of things. So we think, if anything, it will play into our hands. Any questions? Going to let us off very lightly this year. So I will give everyone the opportunity. Any final questions? Otherwise, I thank you for your attendance. Please hand in your yellow voting cards to the Link representatives and make sure everyone's handing their poll cards. I now declare the poll closed. Poll results will be released to the market through the company announcements platform as soon as possible, which is expected to be later this afternoon. Ladies and gentlemen, this concludes the business of the meeting. On behalf of the Board, once again, I'd like to thank you for your ongoing support. I now declare the meeting closed. Thank you for your attendance and participation in the meeting. And there is a cup of tea or coffee on the side deck. Thank you very much.