5 Sep 2008 07:00
CPL RESOURCES plc
Full Year Results for the Year Ended 30th June 2008
CPL Resources plc, Ireland's leading employment services group, today announced full year results for the year ended 30th June 2008.
Financial Highlights
| • Sales €257.6 m | (2007: €195.5 m) |
| • Net Fee Income €52.5 m | (2007: €43 m) |
| • Profit before tax €20.7m | (2007: €19.3 m) |
| • Earning per share 48.3 cent | (2007: 45 cent) |
| • Conversion ratio 39.4% | (2007: 44.8%) |
| • Net Cash €37.5m | (2007: €29.6 million) |
| • Dividend 5.0 cent per share | (2007: 4 cent) |
John Hennessy Chairman of the Group said
"It has been a year of two very different halves. In January we reported profit before tax for the six months to 31 December 2007 of €11.7 million, up 45%. The Group has been operating in a changing and more difficult environment, reflecting a significant decline in employment growth in Ireland and an increase in the numbers on the live register. The Profit before tax for the year of €20.7 million is 7.1% higher than last year"
The strength of CPL's Balance sheet is demonstrated by the reported net cash balances of €37.5 million at 30 June 2008. Our debtor days remain at 35, similar to last year, and we remain focused on ensuring that cash is collected from debtors as quickly as possible. As a result, we have not experienced any significant increase in the levels of bad or doubtful debts.
The year to 30 June 2009 will be a challenging one for the Group, but we are well positioned and resourced to take advantage of any opportunities that may emerge to add to our business, through organic growth or acquisition, in specific markets and sectors."
Commenting on the group's performance and outlook, Cpl Chief Executive, Anne Heraty, said:
"Cpl is a robust and well developed business with a solid earnings history and good earnings potential. The Group has many strengths including our reputation, our ability to deliver for our customers and candidates and our Managed Service customer base.
Permanent placement is the part of our business most affected by the economic environment and as a result fees generated from permanent placement for the group declined by 18% in the second half of the year. All divisions with the exception of our overseas offices have been affected by the slowdown; banking, construction and manufacturing have experienced the most severe impact. Our technology division which represents 21% of our gross profit fared well compared to other sectors. Leading indicators still predict that the technology sector will be one of the better sectors for future job growth
We are targeting selective acquisitions provided they build on our capability to deliver for clients and they enhance shareholder value. We are particularly focused on continuing to grow our international base through organic growth and acquisition. Our international expansion to date has strengthened our ability to support multinational clients with cross border recruitment requirements.
The nature of our business is that we have limited visibility on demand for our services in the medium term. However our business objectives are clear: deepen our customer relationships, keep our temporary employees in jobs, gain market share and expand internationally while also managing our cost base and maintaining a lean and flexible structure." Chariman's Statement
Profit before tax in the year to June 2008 of €20.7 million and earnings per share of 48.3 cent both represent increases of 7.1% over the preceding year
Highlights
Profitability and shareholder value
Profit before tax of €20.7 million, up 7%
Earnings per share of 48.3 cent, an increase of 7%
Final Dividend proposed of 2.5 cent
Operational performance
Revenue of €257.6 million for year, representing growth of 32% year on year
Gross profit of €52.5 million, up 22 % on the year to June 2007
Net cash balances of €37.5 million at 30 June 2008 (€29.6 million at 30 June 2007)
Conversion ratio of 39.4%, down from 44.8% in the preceding year
It has been a year of two very different halves for the Group. In January we reported profit before tax for the six months to 31 December 2007 of €11.7 million, up 45% on the corresponding six months in the previous year and net fee income (gross profit) of €27.4 million. Earnings per share in the first six months to December 2007 amounted to 27.4 cent.
The Group has been operating in a changing and more difficult environment, reflecting a significant decline in employment growth in Ireland and an increase in the numbers on the live register. It is the nature of our business that we are exposed at an early stage to the effects of downturns in the markets and sectors in which we operate. As a result, in the six months to 30 June 2008 our fees from the permanent placement business have fallen by 18% to €11.1 million, compared with €13.5 million in the first six months of our fiscal year. The Gross profit of €13.6 million generated in the six months to June 2008 from our temporary business is slightly behind the first six months gross profit of €14.3 million.
A key performance measure for the Group is the conversion ratio of gross profit to profit before tax and amortisation. This was 39.4% in the year to June 2008, down from 44.8% in the year to June 2007. This reduction reflects the Group's continuing investments in the development of the business in new markets, particularly in Central Europe. Although conversion ratios are lower in the development stage, we expect that our newly developed and growing businesses will make a significant contribution to Group profits in the future.
Cost management in CPL has been a significant factor in the profitable growth achieved in recent years. We have a flexible cost base and will continue to ensure that the size and structure of our organisation is appropriate to market conditions, while allowing us to continue to take advantage of opportunities to expand our business organically and by acquisition.
The strength of CPL's Balance sheet is demonstrated by the reported net cash balances of €37.5 million at 30 June 2008. Notwithstanding the working capital demands associated with our growth in revenues of 32%, this figure is €7.9 million higher than the corresponding balance at 30 June 2007. Our debtor days remain at 35, similar to last year, and we remain focused on ensuring that cash is collected from debtors as quickly as possible. As a result, we have not experienced any significant increase in the levels of bad or doubtful debts.
The current economic downturn in Ireland is posing challenges for the Group as we attempt to continue to grow our business profitably. It is inevitable that a reduction in business activity and confidence will affect recruitment in the short term. However, our business operates across a number of sectors, some of which have been affected less than others by recent events. Furthermore, although employers tend to reduce recruitment of permanent staff in difficult times, utilisation of temporary personnel is not affected to the quite the same extent. The diversification of our business is helping us to deal with more challenging times and to focus our efforts in areas of potential for growth. In this regard, our expansion to other countries (we now have offices in 5 countries outside Ireland) will help to diversify the business.
I would like to thank the whole team for their contribution and loyalty again this year. We are operating in more challenging time but we have a group of highly skilled and motivated people who are committed to the Group and are constantly looking for new ways to deliver value and outstanding service to our clients and candidates. I would also like to extend the appreciation of the Board to our customers for their continued loyalty and support.
I would like also to extend my thanks on behalf of the Board to Mr Pat Garvey, who retired from the Board during the year after more than 8 years as a director. Pat was an outstanding Board member who brought to the Group exceptional skills and experience as an entrepreneur and businessman. His input to the growth and development of the Group was extremely valuable and we are very grateful to him for his contribution.
I would also like to welcome Mr Breffni Byrne and Mr Oliver Tattan to the Board, both of whom were appointed non executive directors during the year. They are both already making a very valuable contribution to the Group and we are delighted to have them as members of the Cpl team.
The year to 30 June 2009 will be a challenging one for the Group. The Irish economy has slowed significantly and the effects of this slowdown on the labour market will be seen for some time to come. Cpl intends to continue to respond appropriately to market conditions by managing our cost base carefully while continuing to provide our customers (clients and candidates) with excellent service. We expect the coming months to be difficult, but we are well positioned and resourced to take advantage of any opportunities that may emerge to add to our business, through organic growth or acquisition, in specific markets and sectors.
The Board is recommending a final dividend of 2.5 cent per share. The dividend will be payable on 31 October 2008 to shareholders on the company's register at the close of business on the record date of 19 September 2008. The final dividend together with the interim dividend of 2.5 cent per share amounts to a total dividend of 5.0 cent per share.
Chief Executive's Review
The year to June 2008 was a challenging one for the Group particularly in the second half. We started the financial year with strong demand for our services and a substantial pipeline of new assignments and customers. As the year progressed the employment environment in Ireland deteriorated and by June 2008 the unemployment rate stood at 5.7% of the labour force up from 4.4% a year earlier. The most telling indicator of the weakness in the labour market was the increase in the number of people on the Live Register which is up 45% in the 12 months to August 2008. The sectors most affected were construction, manufacturing and banking. Our results reflect the impact of the weakening labour market.
Financial Highlights
Group revenue increased by 32% to €258 million in the year to 30 June 2008 (2007: €196 million). In the second half of the year revenue was 5% lower than the first half. The increase in revenue from organic growth was 7.7 % and revenue from acquisitions completed since June 07 was €48.5 million, 18.8% of total revenue.
Gross profit increased by 22% to €52.5million (2007: €43 million) yielding a gross margin of 20.4%,
(2007 22%). Gross profit was 11.3% lower in the second half of the year. Gross profit from permanent placement declined by 22% in the second half whereas gross profit from temporary placement declined by 5%, reflecting the greater resilience of the temporary business.
Profit before tax increased by 7.3% to €20.7 million (2007: €19.3 million). Profit before tax was 23.8% lower in the second half. Operating expenses increased by 33% to €32.7 million (2007: €24.5 million). Operating expenses were similar in the second half, due to our continued investment in people and new international offices. Management have implemented a full review of all expenditure and costs and we will continue to appropriately size our cost base to the operating environment.
Fully diluted earnings per share were 48.3 cent, up from 45 cent in the year to June 2007.
Cash flow was again very strong during the year with the group generating €16 million from operating activities (2007: €15.2 million). We have a strong focus on timely collection of debtors which resulted in debtor days outstanding of 35 at year end. At 30th June 2008 the Group had net cash of €37.5 million (2007: €29.6 million). Net interest received in the year was €908,000 (2007: €726,000)
A final dividend of 2.5 cent per share is proposed, bringing the total dividend for the year to 5 cent per share.
Operations Review
Cpl Resources plc is recognised as a leader in providing specialist recruitment and employment services. We source permanent and temporary/contract personnel for clients in a wide range of sectors including technology, accounting and finance, healthcare, pharmaceutical, sales, engineering, construction, retail and office support/light industrial.
The key performance indicators are outlined below. In the second half of the year these indicators weakened reflecting the impact of the weaker economic environment.
Key performance indicators 30th June 2008 30th June 2008
| Gross Margin |
| 20.4% | 22.0% |
| Operating Margin | 7.7% | 9.5% | |
| Conversion Ratio | 39.4% | 44.8% | |
| Permanent Fees as % of total gross profit | 47% | 52% | |
| Temporary Fees as % of total gross profit | 53% | 48% | |
| Contractor and temporary staff headcount | 5,143 | 4,145 | |
| Number of Net Fee Earners | 299 | 237 |
Gross margin declined 1.6% to 20.4% in the year to June 2008. This decline is a result of the change in business mix between temporary and permanent staff. Our permanent business generates a 100% gross margin. In the year to June 2008 the gross profit earned on permanent fees represented 47% of our total fees compared with the 52% last year. The average margin earned on placing our temporary staff was similar to prior year.
Operating margin was 7.7% for the year down from 9.5% a year earlier. Operating expenses in the second half of the year were similar to the first half. Given the more challenging operating environment the management team are focused on reducing operating costs in all divisions of the business. Our challenge is to ensure that our ability to deliver for our customers and to expand our business locally and internationally is not impacted by these initiatives.
A key performance measure for the Group is the conversion ratio of gross profit to profit before tax. This was 39.4% in the year to June 2008, down from 44.8% in the year to June 2007. The reduction in conversion rate is as a result of our investment in organic growth, opening international offices and investing in people.
Permanent Placement
We achieved a strong performance in permanent placement in the first half of the year. Permanent placement is the part of our business most affected by the economic environment and as a result fees generated from permanent placement for the group declined by 18% in the second half of the year. All divisions with the exception of our overseas offices have been affected by the slowdown; banking, construction and manufacturing have experienced the most severe impact. Our technology division which represents 21% of our gross profit fared well compared to other sectors. Leading indicators still predict that the technology sector will be one of the better sectors for future job growth.
Temporary/contract placement
Our temporary and contract staff work in a wide range of industries and functional areas. We source challenging assignments for them and pay competitive rates while also providing flexible work options. Fees from temporary/contract placement were up 35% in the year. The market softened in the second half; as a result temporary fees for the Group were down 5% in the second half. We increased the number of contractor and temporary staff working on assignment throughout the year to 5,143 up from 4,145.
Overseas Offices
We have continued to build on our success in Central and Eastern Europe. Having acquired Key 6 in Czech Republic and Slovakia in January 2007, we have increased our recruiter numbers in that company from 13 to 29. Gross profit increased by 300%. We also expanded our Polish operation and now have offices in Warsaw and Krakow. We have 94 of temporary staff working on client sites in Poland. Our Central and Eastern European operations now represent 5 % of Group gross profit at June 2008. We also opened additional offices in Barcelona and Brno in the second half of the year. We expect gross profit derived from our overseas offices to continue to increase significantly as a proportion of total gross profit in 2009.
Acquisitions
In July 2007 we broadened our position in the healthcare marketplace by adding Alliance Personnel to our existing healthcare business. We now have three strong businesses in healthcare, Medical Recruitment Specialists, Kate Cowhig Ltd and Alliance Personnel. The last year was a very successful one for the healthcare division. Gross profit for the year increased by 57%. Post acquisition we have implemented new front and back office technology to enhance our service delivery to our clients and candidates. We have expanded the number of doctors, pharmacists, nurses and healthcare professionals working on assignment. At year end we had more than 1,000 people working on healthcare assignments.
Although in the short term we are experiencing some weakness in demand in Ireland for permanent healthcare professionals, demand for temporary staff is strong. We are excited about the opportunities in healthcare over the longer term as demand for healthcare professionals is driven by:
the advances in medical procedures and technologies
an aging population
the move by healthcare organisations towards outsourcing their recruitment
the requirement for flexible business models to meet spikes in demand
the acute shortage of nurses and healthcare professionals
Strategy
Cpl is a robust and well developed business with a solid earnings history and good earnings potential. The Group has many strengths including our reputation, our ability to deliver for our customers and candidates and our Managed Service customer base. The management team are committed to building on these strengths and driving the business forward to deliver our long term strategy. This includes growing our business organically by winning market share and by increasing the range of services we offer to our existing customers. We are also targeting selective acquisitions provided they build on our capability to deliver for clients and they enhance shareholder value. We are particularly focused on continuing to grow our international base through organic growth and acquisition. Our international expansion to date has strengthened our ability to support multinational clients with cross border recruitment requirements.
People
It is through the support of our people that we are able to adjust to the changing market conditions, expand internationally and grow our customer base. I want to take this opportunity to thank all of them for delivering for our candidates and clients and for their hard work and commitment throughout the year. I would also like to extend my appreciation to our customers for their continued loyalty and support.
Outlook
Our first quarter has started slowly with the level of activity below that of our first quarter last year. We are prepared for 2009 to be a difficult year. The nature of our business is that we have limited visibility on demand for our services in the medium term. However our business objectives are clear: deepen our customer relationships, keep our temporary employees in jobs, gain market share and expand internationally while also managing our cost base and maintaining a lean and flexible structure. The Group has a strong Balance Sheet and a committed experienced team who are intent on driving the business forward.
Group income statement
for the year ended 30 June 2008
| Year ended | Year ended | ||
| 30 June 2008 | 30 June 2007 | ||
| €'000 | €'000 | ||
| Revenue | 257,640 | 195,540 | |
| Cost of sales | (205,162) | (152,530) | |
| Gross profit | 52,478 | 43,010 | |
| Distribution expenses | (2,296) | (2,007) | |
| Administrative expenses | (30,413) | (22,456) | |
| Operating profit | 19,769 | 18,547 | |
| Financial income | 928 | 736 | |
| Financial expenses | (20) | (10) | |
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| Profit before tax | 20,677 | 19,273 | |
| Income tax expense | (2,657) | (2,475) | |
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| Profit for the Financial Year | 18,020 | 16,798 | |
| Attributable to: | |||
| Equity Shareholders | 17,976 | 16,786 | |
| Minority interest | 44 | 12 | |
| 18,020 | 16,798 | ||
| Basic earnings per share | 48.3 cent | 45.1 cent | |
| Diluted earnings per share | 48.3 cent | 45.0 cent | |
Group Balance Sheet
for the year ended 30 June 2008
| Year ended | Year ended | ||
| 30 June 2008 | 30 June 2007 | ||
| €'000 | €'000 | ||
| Assets | |||
| Non-current assets | |||
| Property, plant and equipment | 1,541 | 1,273 | |
| Goodwill and Intangible assets | 18,513 | 15,105 | |
| Deferred tax asset | 4 | 13 | |
| Total non-current assets | 20,058 | 16,391 | |
| Current assets | |||
| Trade and other receivables | 35,086 | 24,913 | |
| Cash and cash equivalents | 37,622 | 29,653 | |
| Corporation tax refundable | 37 | ||
| Total current assets | 72,708 | 54,603 | |
| Total assets | 92,766 | 70,994 | |
| Equity | |||
| Issued capital | 3,720 | 3,719 | |
| Share premium | 1,705 | 1,701 | |
| Merger reserve | (3,300) | (3,300) | |
| Retained earnings | 58,309 | 42,100 | |
| 60,434 | 44,220 | ||
| Minority Interest | 56 | 12 | |
| Total equity | 60,490 | 44,232 | |
| Liabilities | |||
| Non-current liabilities | |||
| Financial liabilities | 69 | 296 | |
| Provisions | 268 | 967 | |
| Total non-current liabilities | 337 | 1,263 | |
| Current liabilities | |||
| Financial liabilities | 18 | 42 | |
| Bank overdraft | 76 | 29 | |
| Trade and other payables | 29,059 | 22,316 | |
| Corporation tax payable | 182 | - | |
| Provisions | 2,604 | 3,112 | |
| Total current liabilities | 31,939 | 25,499 | |
| Total liabilities | 32,276 | 26,762 | |
| Total equity and liabilities | 92,766 | 70,994 |
Group statement of changes in shareholders' equity
for the year ended 30 June 2008
| Capital | ||||||||
| conversion | ||||||||
| Share | Share | Reserve | Merger | Retained | Minority | Total | ||
| capital | premium | fund | reserve | earnings | Total | interest | equity | |
| €'000 | €'000 | €'000 | €'000 | €'000 | €'000 | €'000 | €'000 | |
| Balance at 1 July 2006 | 3,714 | 1,686 | 57 | (3,357) | 26,522 | 28,622 | - | 28,622 |
| Shares issued | 5 | 15 | - | - | - | 20 | - | 20 |
| Profit for the financial year | - | - | - | - | 16,786 | 16,786 | 12 | 16,798 |
| Dividends paid | - | - | - | - | (1,208) | (1,208) | - | (1,208) |
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| Balance at 30 June 2007 | 3,719 | 1,701 | 57 | (3,357) | 42,100 | 44,220 | 12 | 44,232 |
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| Balance at 1 July 2007 | 3,719 | 1,701 | 57 | (3,357) | 42,100 | 44,220 | 12 | 44,232 |
| Shares issued | 1 | 4 | - | - | - | 5 | - | 5 |
| Profit for the financial year | - | - | - | - | 17,976 | 17,976 | 44 | 18,020 |
| Dividends paid | - | - | - | - | (1,767) | (1,767) | - | (1,767) |
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| Balance at 30 June 2008 | 3,720 | 1,705 | 57 | (3,357) | 58,309 | 60,434 | 56 | 60,490 |
Group cash flow statement
for the year ended 30 June 2008
| Year Ended | Year ended | ||
| 30 June 2008 | 30 June 2007 | ||
| €'000 | €'000 | ||
| Cash flows from operating activities | |||
| Profit for the financial year | 18,020 | 16,798 | |
| Adjustments for: | |||
| Depreciation on property, plant and equipment | 347 | 209 | |
| Profit on disposal of property, plant and equipment | (32) | - | |
| Amortisation of intangible assets | 394 | 106 | |
| Financial income | (928) | (734) | |
| Financial expense | 20 | 10 | |
| Income tax expense | 2,657 | 2,475 | |
| Operating profit before changes in working capital and provisions | 20,478 | 18,864 | |
| (Increase)/decrease in trade and other receivables | (7,473) | (5,186) | |
| Increase in trade and other payables and provisions | 4,526 | 3,251 | |
| Cash generated from operations | 17,531 | 16,929 | |
| Interest paid | (20) | (10) | |
| Income tax refund / ( paid) | (2,282) | (2,411) | |
| Interest received | 777 | 734 | |
| Net cash from operating activities | 16,006 | 15,242 | |
| Cash flows from investing activities | |||
| Acquisition of subsidiary, net of cash acquired | (3,450) | (4,888) | |
| Deferred consideration paid | (1,902) | (151) | |
| Purchase of property, plant and equipment | (622) | (319) | |
| Disposal of property | 63 | - | |
| Purchase of intangible assets | (160) | (306) | |
| Net cash from investing activities | (6,071) | (5,664) | |
| Cash flows from financing activities | |||
| Repayment of borrowings | (338) | (41) | |
| Proceeds from new loan | 87 | - | |
| Dividends paid | (1,767) | (1,208) | |
| Proceeds from issue of share capital | 5 | 20 | |
| Net cash from financing activities | (2,013) | (1,229) | |
| Net increase in cash and cash equivalents | 7,922 | 8,349 | |
| Cash and cash equivalents at beginning of year | 29,624 | 21,275 | |
| Cash and cash equivalents end of year | 37,546 | 29,624 |
For Further Information:
Anne Heraty, CEO , CPL Resources, 01 614 6000
Josephine Tierney, Finance Director, 01 6146000
Ends