Earnings Call: H2 2021

Aug 26, 2021

Thank you for standing by, and welcome to People Infrastructure Limited FY 'twenty one Results Call. All participants are in a listen only mode. There will be a presentation followed by a question and answer 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 'twenty one annual results. I'm joined by our CFO, Megan Just and by 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've 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 'twenty one, 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 COVID-nineteen, it was 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 2021 versus FY 2020, the growth that we've experienced throughout the year, the second half is much stronger half than the first half, And it's meant that we're starting FY 2022 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 $444,000,000 which was an increase of 19%. Our underlying normalized EBITDA was $38,000,000 which was an increase of 33%, And our underlying NPAT A was $25,000,000 which is an increase of 37%. That translated in So 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 final our total dividends for FY 'twenty one 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 Build by 18 percent to $7,700,000 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 'twenty There's a 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 We placed over 500 indigenous candidates across our business. We grew our home care business from 30 people to 130 people at the year at the end of the year, and we planted over 4,500,000 plants through our Timber Wolf brand. Moving on and talking about the acquisitions we completed, as the as more economic certainty came through throughout the year, then we Continue to execute on our acquisition strategy. We did that across each of our divisions, Which is pleasing to see. And one of the things that we've invested in over the last couple of years is 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 families and been able to execute and improve on their businesses as being part of a 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 a Sydney based IT recruitment business. We acquired TechForce, which is a West Australian, 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 2021. So it was great to after a period of some uncertainty relating to COVID to get Back on to executing on our acquisition strategy. We 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 called out in the presentation, approximately $50,000,000 to $70,000,000 In cash that we can fund without stretching our debt to EBITDA levels, so keeping them below the One times limit, which is not one the banks place on us, but one that we feel comfortable being an appropriate amount of debt In terms of the organic business units that have been growth that we've been able to grow Our sales, our home care 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 2022. Our tribe business, which is outsourced HR and payrolling services also grew substantially throughout the year And is expected to grow throughout FY 2022. 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, It's 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 What we traditionally have seen, what we saw very recently was when we come out of these periods, there's even an increased Level of demand coming from clients. So once again, expect escalated demand coming once those lockdowns cease. 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 We've 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 been able to 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 in 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 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 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 $250,000,000,000 Just talking about the growth opportunities that we're focused on. In staffing, there's a number of new markets, New verticals that we're focused on. I call 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'll 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, how 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 on that part of our business. We see it It's being a key driver of more employees into our staffing business and also another, as I said, a way to capitalize on those And finally, on the operational services sector, There's a number of opportunities that we're continuing to pursue and continuing to grow. Home Care, we're looking to continue to grow that business Of ours, that's already shown significant growth throughout FY 2021. 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 We have broken records in both revenue and EBITDA contribution with the second half of this financial year showing a really strong recovery from the impact With COVID in the first half, the EBITDA contribution was $38,000,000 with $17,000,000 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 impacts 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 Vision completing in July, which is predominantly in Queensland. At 30 June, we were in a net debt position of $25,200,000 so we remain in a strong position to undertake Future acquisitions. The other days remained exceptional at 34 days for the group, excluding TechForce, down from 37 days At the half year, we continued 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 percent in financial year 2021. And going forward into financial year 2022, we're expecting this to decrease to approximately 31%. We're forecasting an increase in capital expenditure in the next Financial year with investment into our systems and processes to continually improve our service delivery and efficiencies internally. We've estimated this to be $2,500,000 in financial year 2022. Cash flows from operations have been impacted by the settlement of deferrals obtained as a result of COVID and normalized operating cash flows as a percentage of normalized NPAT A is 84% over the last 2 years. There is $2,500,000 still outstanding with regards Payroll tax deferrals, which will be settled in the first half of FY twenty twenty two. So I'll just pass it back to Jefflyn to talk about the businesses. Thanks, Megan. So just providing a bit more detail on the business as a whole and each of the individual divisions. The total group build 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 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 from the first half. So you can see how strong the business has been in the second half of the year and the strength The position that we have going into FY 2022. Just running through each of the individual divisions. With respect to Healthcare, The build hours increased by 14% year on year. Special thing to call out there was, I guess, the increased work We got with respect to COVID testing, vaccinations and some of the hotel related quarantine work. Also want to make a special mention of the acquisition of the swing shift 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 ACT For Health, which is also active 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 regional nursing business During the year, and that's enabling us to service 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 opens 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 It's 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 home care business back in February 2020. So we At our first full 12 months of operating, that business we have significantly grown the number People we service in that business, we've invested in the systems to make sure that we can continue to scale that business Throughout FY 2022 and beyond. With respect to our IT business, it was able to grow its build hours In FY 2021 versus FY 2020 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 In the first half. So it had a tremendous second half and the outlook looks incredibly positive for that business. It's 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 'twenty two 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 it. 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 eCare and Illuminate business joined People in during the year in February. That's been integrated into our Sydney Healthy and Nice 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 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 Specialty Services vertical, Increased their bill hours 23% year on year. Margins were fairly steady. It also launched a perm recruitment business, which will grow into FY22, 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 TechForce and Vision Surveys teams join our business, really excited around the opportunity These businesses, both in their own right, but also as part of the broader people in 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 And tremendous growth coming through at the year across each of the divisions in which we operate in. Although there's some short what we see is being very much short term uncertainty relating to the New South Wales and Victorian 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 2022, 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 where, in particular, investing in the employee 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 We're investing in offshore staffing funnels to facilitate further growth post quarter 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 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 to spend to continue to Make sure that there isn't if any lockdowns are prolonged, 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 We're accumulating cash and their willingness to spend that once they come out of lockdowns. 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're all our comments. I'll hand it back to the moderator for questions. Thank Your first Question comes from Curt Gelsomino with Morgan. Please go ahead. Good morning, Declan. Can you hear me okay? Yes, Kurt. How are you going? Yes, good. Thank you. Yes, congratulations on a solid result. I just thought I'd sort of unpack your outlook comments initially where you sort of talked to The volatility or the impacts on COVID in Newshavens, while the Victoria being significantly impacted mitigated, mitigated. So as a correction, I interpret that, that mitigation should mean that you'd expect your second half twenty twenty one EBITDA run rate of that sort of $17,000,000 is sort of continuing on in this first half 'twenty two. Is that the correct way to interpret that mitigation comment? Yes, I think that's a fair assumption. And can you just sort of At this point, We've made a decision not to give guidance. And historically, we never did give guidance until with all the uncertainty around COVID, we Okay. Guidance last year. So we sort of reverted back to that. But certainly, assuming Assuming there's no major change to current economic conditions and what's happening with respect to the lockdowns, then I Expect that $78,000,000 number to be a good run rate number historically. Terrific. And can you maybe just talk to, I guess, where are some of the impacts Where are some of the, I guess, the growth you're seeing across the business at the start of first half twenty twenty two? And just talk to, I guess, what are some of the impacts being experienced New South Wales and Victoria across your various verticals? Yes, sure. So it's quite Firstly, it's quite varied, right? So the businesses that are being, What I would call slightly negatively impacted, our Sydney nursing Mainly the private part of that business rather than the public part of that business. Our child care business We've had some impact with respect to the casual part of that business, but the perm part of that business has been quite strong. Couple of small clients in our blue collar business have been impacted, and parts of that tribe Business have been impacted, but I wouldn't consider them to be material. But then conversely, our Fee 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 Had some small downturn. And I guess given IT saw a bit of a downturn in The initial lockdowns in Victoria, I guess you highlighted a very positive outlook to that business again in FY 2022. So you're not sort of concerned by The Melbourne lockdowns at this stage for the on the IT business? No, not at all. And can you just sort of remind me, I think that $9,000,000 of EBITDA you're expecting from the acquisitions you completed In FY 'twenty one, is it fair to assume that, I guess, that contribution would be reasonably evenly split first half, second half in FY 'twenty two? Yes, I think so. I guess just it's going to be slightly up in the second half just because didn't complete on the probably for two reasons. One is we didn't complete on the Vision acquisition until Start of August, so we're missing a month there. And also, the TechForce business is growing, so we expect it to have a stronger Yes, understood. And maybe just a question on the cash flow. It looked like there's a Yes, significant increase in receivables into year end. I think you sort of flagged the impact of the TechForce acquisition there. I guess, was that sort of the driver of the increased David, have you seen that sort of working capital build release in the first half of twenty twenty? Yes. So Look, obviously, the business grew throughout the year. So there was more working capital we 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 So you didn't have to pay for that separately as such, but that's what drove that increase in the receivable. We have seen July has been a really positive cash flow month. I think we did $3,800,000 in operating cash flow for the month. So There was a partial bounce back there as well. Understood. And I guess your M and A comments are pretty clear. I guess Yes, these recent lockdowns are sort of slowing. I guess, your sort of intention to pursue M and A in the near term? No, no. And like we've got, 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 it would 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. Terrific. And I guess, well, you made that comment too in the pack that you're sort of saying that there's no real, I guess, well, there's not a lot of increased competition For acquisitions at the moment, is that sort of what you're highlighting? Did you say there's not a lot of competition for acquisitions? Yes. I thought I sort of commented on the impact there. Yes. Look, it's been key to our execution strategy for a number of years has been the fact that we have been able to make acquisitions without the Competitive tension of a sales process, and we've been able to do it on terms that work for both us and the vendor. And we've seen those conditions continue. So it's great to have such a Strong pipeline of acquisitions that we know that we can buy many cases on an exclusive and off market basis, and they fit so well strategically with our business. Awesome. I'll leave it there. Thanks a lot for your time, Declan. Thank you, Kurt. Thank you. Your next question comes from Jack Dunn with Ord Minnett. Please go ahead. Good morning, Declan, Megan and Tom. Thank you for taking my call. Thanks, Jack. How are you going? Good. Thank you. Got a couple of questions for you this morning. And I'll start off on the acquisition pipeline. I mean, some of the target areas you called out in The Doctor Businesses and Allied Health, can you just provide a bit more color around what you're seeing in that market? And are you sort of expecting the same multiple range of 4 It's time that you called out at behalf. Yes. So I think In terms of the types of opportunities, they're staffing businesses. So they fit neatly with the offering that we're already Providing and in many cases, for instance, where we're providing either nurses or carers in the hospitals or say aged care facilities, then Providing either doctors or allied health workers is just another very natural offering that fits Those business it fits with those businesses and fits in that division very well. We yes, in terms of multiples, Pretty similar levels. So we've always been very focused on buying These types of businesses for multiples of less than 5 times, and that continues to be the expectation. All right, great. Thank you for that. This is my next question. Looking at like procurement within hospitals, what are you sort of seeing at the moment Given international borders are closed and the different levels of domestic border closures. And then also, what are your expectation? And if you Good to say that targeted 70%, 80% vaccination rates within this. I'll come back to your second part In a second, I might need some clarity on that. But in terms of procurement from hospitals and how we've been seeing things, it hasn't Apart from the things I've called out historically, such as obviously, there's less nurses moving between states because of Closed borders and less nurses coming in internationally because of the closed borders. They've been the things that have Made a little bit different over the last 12 months, and that hasn't changed. But our business has really been operating In somewhat of a steady state in terms of responding to our clients and what their needs have been. Now the needs Have changed based around kind of what's happening in their own business. So with respect to hospitals, what's been happening with respect to Are the surgeries or their expectations around vaccinations, etcetera, then they're things that we work Very closely with our clients in terms of being able to provide them with a workforce that meets their expectations. But apart from that, it's sort of been business as usual for us. And what was the second question? Yes, just I'll just clarify that one a bit better. So it's more about when Australia gets those Targeted 70% to 80% rates and some of the restrictions on borders with ease. Are you thinking are you expecting Some greater availability of nurses to meet your clients' needs, which will help? Or how are you sort of seeing the market once Once these restrictions ease off. Yes. Well, I think once when domestic borders are open, then you've just got Across our whole business, you've just got a workforce that can move more easily and respond to whatever clients' demands And that's in nursing, but it's also across a bunch of other sectors. So that will be great to see. We've been kind of living With this for a while now, so we've learned to sort of manage it and deal with it and be able to respond to our clients without having that flexibility. But that will definitely be helpful to us, especially in a market where there's a shortage of employees. We're also very focused on building our funnel of international employees, and this is really across our business so that when the International borders do open. We'll be able to capitalize on that. We think there's going to be significant demand Some international employees wanting to come to Australia and work when our international borders do open. There's a little bit of it going on at the moment, but it's a bit harder to manage given demands around quarantine, etcetera. But we're more excited around what it's going to mean for us when the borders actually do international borders do open. Perfect. Just on international finals, is there any sort of geographical region where you're targeting more And others? In terms of international workers, I think In our Industrial Services business, we're focused on opportunities with Pacific Islands, in particular. I think with our Healthcare business, probably more in the U. K. We're also focused Philippines actually with respect to opportunities in our industrial services sector. So there's a bit of a cross section Of countries that we're focused on. Perfect. And then just the last one from me. I was wondering if you could just touch on the labor market at the moment. And Obviously, nursing, you said there's challenges getting nurses. Are you sort of finding any other areas tough to find labor? And is it sort of You're mismatching available labor in some areas as well in terms of you've got oversupply in some divisions whereas others are tough. Yes. So look, really across our business, we've always Strategically tried to focus on those parts of the Australian economy that are growing and when there's strong demand for employees. And so really across our really across most of our business when you've got Unemployment being as low as it is, then you've just got constant Demand from clients looking for workers and us out there using all our capabilities and to actually So I'd say it's probably it's not a bad thing. It's pretty consistent across our business where it's a tight employment market. It doesn't mean that we can't service them. It just means that, if anything, the value that we provide to our clients is more pronounced in these markets. Perfect. Thank you. That's all for me. Thanks again. Thanks, mate. Thank There are no further questions at this time. I'll now hand back to Mr. Sherman for closing remarks. Great. Thanks very much for that. Thanks, everyone, for dialing in. Really appreciate your support throughout the year and look forward to catching up in the future. Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.