REG-Matchtech Group PLC Final Results - Part 1
Released: 14/10/2008
com:20081014:RnsN7516F
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RNS Number : 7516F
Matchtech Group PLC
14 October 2008
14 October 2008
Matchtech Group plc
Preliminary Results for the year ended 31 July 2008
Matchtech Group plc ("Matchtech" or the "Group"), one of the UK's leading
specialist technical recruitment companies, is pleased to announce its
Preliminary Results for the year ended 31 July 2008.
Financial Highlights
* Revenue £258.8m (2007: £202.8m)* up 28%
* Net fee income (Gross Profit) £33.2m (2007: £26.9m)* up 23%
* Operating profit £13.8m (2007: £11.3m)* up 22%
* Adjusted Profit Before Tax (before nonrecurring items) up 22%
£12.8m (2007: £10.5m) *
* Reported Profit Before Tax (after nonrecurring items) up 29%
£12.8m (2007: £9.9m)
* Adjusted Basic EPS (before nonrecurring items) 39.34p up 21%
(2007: 32.42p) *
* Reported Basic EPS (after nonrecurring items) 39.34p up 30%
(2007: 30.16p)
* Total dividend for year of 15.6 pence per share (2007: up 14%
13.7 pence). Dividend cover of 2.5 times.
* Cash flow from operating activities £14.9m (2007: up 84%
£8.1m)
* Net debt reduced by £6.7m to £3.1m, with gearing at
just 18.1%
*2007 results exclude sales and profits from the US business sold on 31 August
2006 as well as the non-recurring costs of the IPO.
The financial statements have been prepared under International Financial
Reporting standards; see IFRs below.
Operating Highlights
* Substantial organic growth across every sector
* Strong growth throughout the year - Net fee income growth H1 up 22%, H2 up
24%
* Healthy balance of Contingency, Preferred and Master Vendor business
* Maintained good net fee income mix - contract 67%, permanent 33%
* Permanent fees up 28%, permanent placements up 31%
* Contract net fee income up 21% and number of contractors working at the year
end up 11%
* Sales force headcount increased by 26%
Current Trading and Proposed Share Buybacks
* Net fee income in the first two months of the current financial year up 13%.
Contractors working at the end of September were 4,595, up 5% since end July.
* Seeking shareholder approval at the forthcoming AGM for buybacks of up to 10%
of share capital
Commenting on the results, George Materna, Chairman of Matchtech said:
"Our strong second half performance maintained our momentum and ensured that we
built on our track record of sustained organic growth. We have delivered record
turnover in the year converting into record profits across every sector of the
business.
"This excellent performance has strengthened our position as the UK's biggest
single-site recruitment agency and we have continued to build on our already
strong presence in our core industry sectors.
"The clients and sectors that we serve continue to exhibit strong structural
growth characteristics. We are involved in the recruitment process throughout a
project's life-cycle from the initial design and conception phase, through the
construction and implementation stages and finally to the delivery and
maintenance of the asset or infrastructure. Many of these projects, such as the
construction of the two new Aircraft Carriers for the Royal Navy which are due
in service in 2014 and 2015, and the construction of the Olympic site, due in
2012, operate on long life cycles and are not materially impacted by the current
financial turmoil. Moreover we have a highly diversified and expanding customer
base, which provides further opportunities for growth and adds an additional
element of protection to our business.
"The technical markets continue to suffer from skills shortages, which, in turn,
create demand for qualified candidates despite the macro economic turbulence. By
providing high levels of service across the entire UK from our single site
location, we are gaining new clients and winning business from our competitors.
"Our clear defensive strategy of pursuing organic growth in our well established
areas through working with our highly diversified client base is working and
offers scope for further growth. Whilst there will be competitive and market
challenges ahead, we are well positioned, with the flexibility offered by our
single site, to respond quickly and effectively to any deterioration in market
conditions.
"Overall trading in the first two months of the current year has been good, with
net fee income up 13% on the same period last year and contractor numbers up 5%
since the end of July. We are determined and consistent at what we do and
believe we can deliver another successful year."
For further information please contact:
Matchtech Group plc 01489 898989
George Materna, Chairman
Adrian Gunn, Group Managing Director
Tony Dyer, Group Finance Director
Hogarth Partnership 020 7357 9477
John Olsen / James Longfield / Fiona Noblet
Arbuthnot Securities
Mark Brown/Katie Shelton/Richard Tulloch 020 7012 2000
IFRS
The financial statements have been prepared in accordance with applicable
International Financial Reporting Standards ('IFRS') as adopted by the European
Union (EU) and which are effective at 31 July 2008, our first annual reporting
date at which we are required to use IFRS accounting standards as adopted by the
EU.
Matchtech Group plc's consolidated and company financial statements were
prepared in accordance with United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice) until 31 July 2007. The date of
transition to IFRS was 1 August 2006. The comparative figures in respect of 2007
have been restated to reflect changes in accounting policies as a result of
adoption of IFRS. The disclosures required by IFRS 1 concerning the transition
from UK GAAP to IFRS are given in the reconciliation schedules, presented and
explained in note 2 to the financial statements.
Background on Matchtech
Matchtech specialises in the provision of contract and permanent staff in the
Engineering, Built Environment and Support Services sectors across the UK.
It was established in 1984 and has grown organically to become the UK's 2nd
largest technical recruitment specialist and the UK's 17th largest recruitment
company (Source: Recruitment International Top 100 Report - 2008).
Operating from a single site near Southampton, Matchtech provides predominantly
professionally-qualified candidates to clients in a broad range of industries
including oil and petrochemicals, pharmaceutical, marine, aerospace, automotive,
water, electronics, civil engineering, building structures and transport
infrastructure.
Group Chairman's Statement
This has been another excellent year for Matchtech. Our strong second half
performance maintained our momentum and ensured that we built on our track
record of sustained organic growth. We have delivered record turnover in the
year converting into record profits across every sector of the business.
For comparison purposes 2007 results exclude the sales and profits from the US
business sold on 31 August 2006 as well as the non-recurring costs of admission
to AIM.
Turnover was £258.8 million, up 28% on 2007, with net fee income (gross profit)
of £33.2 million up 23%.
Operating profit and profit before tax were both up 22% to £13.8 million and
£12.8 million respectively, with the First Half profit before tax up 21% and the
Second Half up 22%. Adjusted basic earnings per share increased to 39.3 pence,
up 21%.
This excellent performance has strengthened our position as the UK's biggest
single-site recruitment agency and we have continued to build on our strong
presence in our core industry sectors.
The Board has a progressive dividend policy and I am pleased to confirm a
proposed final dividend for the year of 10.6 pence per share, which when added
to the interim dividend of 5.0 pence per share, makes a total dividend for the
year of 15.6 pence per share, a 14% increase on last year. The final dividend,
if approved by shareholders at the Annual General Meeting to be held on 21
November 2008 will be payable on 5 December 2008 to shareholders on the register
on 7 November 2008.
Cash generation has again been strong and our net debt has fallen to £3.1m on 31
July 2008 from £9.8m at the 31 July 2007.
The recruitment and retention of our high quality staff, at all levels and in
all areas, along with the ability to align their interests with shareholders and
to provide the best service and results possible is essential for sustained
organic growth. There is a high performance culture across the group created by
the enthusiasm, the dedication, the professionalism and the desire to succeed of
all our staff.
This is a people business and our people have shown a commitment to clients,
candidates and contractors that gives a significant competitive advantage. On
behalf of the Board, I would like to thank the whole of the Matchtech team for
their continued commitment and hard work.
The clients and sectors that we serve continue to exhibit strong structural
growth characteristics. We are involved in the recruitment process throughout a
project's life-cycle from the initial design and conception phase, through the
construction and implementation stages and finally to the delivery and
maintenance of the asset or infrastructure. Many of these projects, such as the
construction of the two new Aircraft Carriers for the Royal Navy which are due
in service in 2014 and 2015, and the construction of the Olympic site, due in
2012, operate on long life cycles and are not materially impacted by the current
financial turmoil. Moreover we have a highly diversified and expanding customer
base, which provides further opportunities for growth and adds an additional
element of protection to our business.
The technical markets continue to suffer from skills shortages, which, in turn,
create demand for qualified candidates despite the macro-economic turbulence. By
providing high levels of service across the entire UK from our single site
location, we are gaining new clients and winning business from our competitors.
Our clear defensive strategy of pursuing organic growth in our well established
areas through working with our highly diversified client base is working and
offers scope for further growth. Whilst there will be competitive and market
challenges ahead, we are well positioned, with the flexibility offered by our
single site, to respond quickly and effectively to deterioration in market
conditions.
Overall trading in the first two months of the current year has been good, with
net fee income up 13% on the same period last year and contractor numbers up 5%
since the end of July. We are determined and consistent at what we do and
believe we can deliver another successful year.
George Materna FREC FCIPD
Group Managing Director's Report
Matchtech has continued to deliver consistent growth in both the First and
Second Half of the year despite a slowing UK economy. This is testament to the
structure and strength of the business, the markets in which we operate and the
high quality of our staff and management.
In a period when the growth of the UK economy has slowed, Matchtech has
continued to grow in excess of 20%. We are pleased to report that our results
have produced pre-tax profits of £12.8m compared to £10.5m (excluding
non-recurring items) in 2007, up 22%.
Our business mix was essentially unchanged. We remain a contract led
organisation; contract recruitment accounts for 67% of the Company's net fee
income and permanent recruitment 33%. Both areas continue to show good growth,
with contract recruitment up 22% and permanent up 28%. Most pleasingly, this
growth has been consistent in both H1 and H2.
We have again demonstrated our ability to grow organically across all three of
our sectors. Long term publicly funded projects, continuing skills shortages of
highly technical candidates and a strategy of expanding our geographical reach
within the UK aided growth within our Engineering and the Built Environment
sectors.
In our Support Service Sector our strategy of expanding the range of skill types
placed has taken us into new markets and diversified our client base.
We continued to deliver a healthy mix of contract and permanent business
supplying our clients on a Contingency, Preferred Supplier and Managed Agency
basis.
Our top 50 clients generated 54% (2007: 50%) of our net fee income. Babcock
International, VT Group and Mouchel Group are our largest three clients, each
generating around 4% of our net fee income. The highlight of the year was the
re-signing of a 5 year contract with Babcock International and extending the VT
Group Managed Service Provider contract for a further three years. The largest
new contract win in the period was the contract with Ricardo, which is our first
Master Vendor win in the Automotive sector.
We have delivered net fee income growth from our strategy of up-selling services
with existing clients. This, along with a competitive marketplace, has put a
slight downward pressure on our percentage margins which reduced to 12.8% from
13.3% in 2007.
Quality candidates remain in short supply but we have demonstrated our ability
to source and place the best. This year we have placed 2,868 candidates into
permanent positions, 31% up on 2007's 2,192 and we have filled over 6,800
contract/temporary assignments, up 8% on 2007's 6,300. Contractor care continues
to be high on our agenda. This is demonstrated by our stance of continuing to
pay our contractors and consultancies weekly. Internal service levels agreements
are in place to ensure the contractor receives a high level of service from our
consultants and our support staff.
I would like to thank all contractors and consultancies that have worked with
Matchtech this year. With the quality service they deliver we are able to foster
and maintain strong relationships with our clients.
We increased headcount in all three sectors to keep up with growth, especially
within Support Services. Total numbers have risen from 245 to 296 staff, up 21%
and sales force from 166 to 209 staff, up 26%.
This strong investment in increased headcount and slight change in business mix
between contract and permanent recruitment has reduced our NFI conversion
marginally to 41.6% (2007:42.0%). However, we aim to see the benefits from our
staff investment next year together with increased staff productivity through
training and development geared around service delivery.
The Group's remuneration strategy for sales consultants remains strongly biased
towards variable over fixed remuneration, encouraging staff to over perform.
Our leading edge IT technology continued to deliver operational efficiency and
our proven single site strategy ensured our cost base remained under control.
We have further strengthened our business continuity strategy by achieving the
new BS25999 Business Continuity standard and as such became the first UK
recruitment company to obtain this certification.
Once again our experienced management team and high quality staff have produced
another set of excellent results demonstrating their ability to perform in a
less buoyant environment. I would like to thank all our staff for their hard
work.
Their industry knowledge has ensured we are involved at the early stages of new
business development opportunities and their ability to coach and mentor new
staff is driving each sector's future growth plans.
We have demonstrated our ability to grow in demanding economic times. Our
responsive service delivery model has won contingency business from our
competitors and our Managed Service offering has developed an enviable
reputation within the industry.
Our growth strategy remains unchanged along with our ability to maintain a low
flexible cost base.
Our business development pipeline remains healthy and the management team will
be working hard to increase the number of Managed Agency accounts as well as
increasing the revenue generated by our existing accounts.
Finally we believe there has been little change in the long term growth drivers
in the Engineering and Built Environment sectors and are committed to our
strategy to diversify our Support Services sector.
We have a seasoned management team and our single site strategy means we are
well positioned to respond quickly and effectively in the event of a weakening
in market demand. This gives us confidence in uncertain economic times that
Matchtech is well placed to continue to deliver solid performance in the
future.
Adrian Gunn FREC
Group Finance Director's Review
This year Matchtech has again delivered consistent growth across all our sectors
and the conversion to International Financial Reporting Standard's ("IFRS") has
had minimal impact on our reported results.
International Reporting Standards ("IFRS")
The Financial Statements for year ending 31 July 2008 are the first set of
annual results prepared under IFRS. The transitional arrangements are detailed
in Note 2 to the accounts on page 28.
The principle impact of the conversion relates to IAS12 Income Taxes, where the
provision for the full potential future tax deduction in respect of share
options resulted in an increase in the deferred tax asset recognised by £0.4m
and the requirement to take to equity the excess tax effect of gains and losses
on the exercise of share options in the period over and above the previously
expensed share options cost under IFRS 2. The impact is a £0.8m increase in 2007
income tax expense and a resultant £0.8m decrease in profits after tax for that
period. Consequently the comparative fully diluted EPS of continuing operations
is 29.43p which was previously reported as 32.66p under UK GAAP. The two other
areas affected are IAS 17 Leases and IAS 19 Employee Benefits; neither
materially affects the results.
Group non-recurring items
For comparison purposes we have excluded from the 2007 results the non-recurring
items of the sales and profits of the US business sold on 31st August 2006 of
£0.07m as well as the nonrecurring costs of the admission to AIM of £0.6m.
Group Income Statement
Matchtech has continued to build on its resilient business model, once again
posting record results.
With all sectors showing growth on last year turnover increased 28% to £258.8m
(2007: £202.8m).
Net fee income increased 23% to £33.2m (2007:£26.9m) reflecting a slight fall in
our gross profit margin to 12.8% (2007: 13.3%).
A strong permanent marketplace in the sectors in which we operate has resulted
in faster growth in permanent fees than contract net fee income and a slight
shift in mix, with 67% (2007: 69%) of net fee income derived from recurring
contract income and 33% (2007: 31%) from permanent placements. We continue,
however, to be a contract led business, maintaining a healthy balance between
contract and permanent business.
Investment in new staff slightly impacted the net fee income conversion to
operating profit which was 41.6% (2007: 42.0%).
Operating profit rose by 22% to £13.8m (2007: £11.3m). Profit before tax also
rose by 22% to £12.8m (2007: £10.5m).
Profit after tax of £9.1m was up 25% (2007: £7.3m).
Group Earnings Per Share
Basic Earnings Per Share were up 30.4% to 39.34p (2007: 30.16p) and Diluted
Earnings Per Share up by 30.0% to 38.25p (2007: 29.43p).
Excluding the non-recurring items in 2007, underlying Basic and Diluted Earnings
Per Share were up 21.3% and 20.9% respectively.
Group Dividends
The Board has proposed a final dividend for the year of 10.6 pence per share,
payable on 5 December 2008 to those shareholders registered on 7 November 2008.
This makes a total dividend for the year of 15.6 pence per share (2007: 13.7
pence per share), up 14%.
Group Balance Sheet
Group net assets stood at £17.1m (2007: £10.8m). Net debt fell by £6.7m to £3.1m
(2007: £9.8m) and debtor days fell by 3.3 days to 40.1 days (2007: 43.4 days).
At 31 July 2008 £0.3m (2007: £0.3m) of the debtor book of £38.3m was greater
than 90 days overdue, less than 0.8%.
Group Financing and Cashflow
The Group operates a Confidential Invoice Discounting facility with Barclays
Bank plc. The facility ceiling currently stands at the lower of £20m or 90 per
cent. of qualifying invoiced debtors.
On 27 May 2008, the Group entered into a £7.5m Revolver Credit facility with
Barclays Bank plc. The Revolver Credit facility replaced the previously held £5m
three year loan with Barclays Bank and on 31 July 2008 Matchtech repaid the
entire balance on the £5m loan.
At 31 July 2008 the balance on the Confidential Invoice Discounting Facility was
£3.3million and the borrowings from the Revolver Credit facility were zero.
The utilisation of all borrowing facilities as at 31July 2008 was 12%.
The Group continues to be cash generative at an operating level. Operating cash
conversion in 2008, as defined by cash generated from operations as a percentage
of operating profit, was 108% (2007: 76%).
Group Financial Risk Management
The Board reviews and agrees policies for managing financial risks. The Group's
finance function is responsible for managing investment and funding requirements
including banking and cash flow monitoring. It seeks to ensure that adequate
liquidity exists at all times in order to meet its cash requirements
The Group's strategy is to finance its operations through a mixture of cash
generated from operations and, where necessary, equity finance and borrowings by
way of bank loan and confidential sales ledger financing.
The Group's financial instruments comprise borrowings, cash and various items,
such as trade receivable and trade payables, that arise from its operations. The
main purpose of these financial instruments is to finance the Group's
operations. The Group does not trade in financial instruments. The main risks
arising from the Group's financial instruments are described below.
* Liquidity and Interest rate risk
The Group had net debt of £3.1m at the year end, comprising £3.4m (debt) less
£0.3m (cash).
The Group's exposure to market risk for changes in interest rates related
primarily to the Group's bank loan and sales financing facility debt
obligations. Bank interest is charged on a floating rate basis.
As a guide, a 1% increase in interest rates, will cost an approximate £0.1m in
additional interest.
The interest rate on the current Confidential Invoice Discounting Facility is
linked to Barclays Bank base rate and the Revolver Credit Facility is linked to
LIBOR.
Barclays Bank has the right, at any time, to set-off the amount of any liability
owed to the bank against any amounts owed by the bank.
* Credit risk
The Group seeks to trade only with recognised, creditworthy third parties.
Receivable balances are monitored on an ongoing basis with the result that the
Group's exposure to bad debts has not been significant. There are no significant
concentrations of credit risk within the Group, with no debtor as at 31 July
2008 accounting for more than 5% (2007: 7%) of total receivable balances..
* Foreign currency risk
The Board considers that the Group does not have any material risks arising from
the effects of exchange rate fluctuations.
Tony Dyer FMCA
CONSOLIDATED INCOME STATEMENT
for the year ended 31st July 2008
2008 2007
CONTINUING OPERATIONS Note £'000 £'000
Revenue 258,830 202,779
Cost of Sales (225,596) (175,902)
GROSS PROFIT 3 33,234 26,877
Cost of admission to AIM 0 (572)
Other administrative expenses (19,442) (15,623)
Total administrative expenses (19,442) (16,195)
OPERATING PROFIT 4 13,792 10,682
Finance income 79 20
Finance cost 7 (1,074) (831)
PROFIT BEFORE TAX 12,797 9,871
Income tax expense 10 (3,705) (3,162)
PROFIT FROM CONTINUING OPERATIONS 3 9,092 6,709
Discontinued operations
Profit from discontinued operations 5 0 67
PROFIT FOR THE PERIOD 9,092 6,776
EARNINGS PER ORDINARY SHARE
2008 2007
Note pence pence
Basic Continuing operations 11 39.34 29.86
Discontinued operations 11 0.00 0.30
Total 39.34 30.16
Diluted Continuing operations 11 38.25 29.14
Discontinued operations 11 0.00 0.29
Total 38.25 29.43
STATEMENT OF CHANGES IN EQUITY
for the year ended 31st July 2008
A) GROUP Foreign Currency Translation Reserve Share Capital Share premium Other reserve Share based payment reserve Retained Earnings Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 August 2006 0 221 2,009 229 338 4,884 7,681
Currency translation differences from
foreign operations 3 0 0 0 0 0 3
Net income recognised directly
in equity 3 0 0 0 0 0 3
Profit for the year (3) 0 0 0 0 6,776 6,773
Total recognised income/expense
for the year 0 0 0 0 0 6,776 6,776
Dividends in the year 0 0 0 0 0 (5,428) (5,428)
Deferred tax movement re share options 0 0 0 0 0 644 644
IFRS2 credit 0 0 0 0 321 0 321
IFRS2 reserves transfer 0 0 0 0 (273) 273 0
EBT reserve movement 0 0 0 (5) 0 5 0
New share capital 0 9 820 0 0 0 829
0 9 820 (5) 48 (4,506) (3,634)
At 31st July 2007 0 230 2,829 224 386 7,154 10,823
At 1 August 2007 0 230 2,829 224 386 7,154 10,823
Profit for the year 0 0 0 0 0 9,092 9,092
Total recognised income/expense
for the year 0 0 0 0 0 9,092 9,092
Dividends in the year 0 0 0 0 0 (3,310) (3,310)
Deferred tax movement re share
options 0 0 0 0 0 (296) (296)
IFRS2 credit 0 0 0 0 539 0 539
IFRS2 reserves transfer 0 0 0 0 (131) 131 0
New share capital 0 2 216 0 0 0 218
0 2 216 0 408 (3,475) (2,849)
At 31st July 2008 0 232 3,045 224 794 12,771 17,066
Share Capital Share premium Retained Earnings Total
B) COMPANY £'000 £'000 £'000 £'000
At 1st August 2006 221 2,009 (1,289) 941
Profit for the year 0 0 6,765 6,765
Total recognised income/expense
for the year 0 0 6,765 6,765
New share capital 9 820 0 829
Dividends paid in the year 0 0 (5,428) (5,428)
At 31st July 2007 230 2,829 48 3,107
At 1st August 2007 230 2,829 48 3,107
Profit for the year 0 0 3,321 3,321
Total recognised income/expense
for the year 0 0 3,321 3,321
New share capital 2 216 0 218
Dividends paid in the year 0 0 (3,310) (3,310)
At 31st July 2008 232 3,045 59 3,336
A dividend will be declared from Matchtech Group UK Limited prior to the payment
of the proposed dividend outlined in note 8.
BALANCE SHEETS
as at 31st July 2008
GROUP COMPANY
2008 2007 2008 2007
Note £'000 £'000 £'000 £'000
NON-CURRENT ASSETS
Intangible assets 12 170 133 0 0
Property, plant and equipment 13 1,809 1,699 0 0
Investments 15 0 0 250 250
Deferred tax asset 14 292 529 0 0
Total Non-Current Assets 2,271 2,361 250 250
CURRENT ASSETS
Trade and other receivables 16 38,565 31,984 2,880 2,203
Cash and cash equivalents 297 836 211 656
Total Current Assets 38,862 32,820 3,091 2,859
TOTAL ASSETS 41,133 35,181 3,341 3,109
LIABILITIES
Current Liabilities
Trade and other payables 17 (18,930) (12,617) 0 0
Current tax liability (1,788) (1,068) (5) (2)
Bank loans and overdrafts - short term borrowings (3,349) (6,924) 0 0
- current portion of long
term borrowings 0 (1,666) 0 0
(24,067) (22,275) (5) (2)
Non-current liabilities
Long term borrowings 19 0 (2,083) 0 0
TOTAL LIABILITIES (24,067) (24,358) (5) (2)
NET ASSETS 17,066 10,823 3,336 3,107
CAPITAL AND RESERVES
Called-up equity share capital 21 232 230 232 230
Share premium account 3,045 2,829 3,045 2,829
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