CPS.L Regulatory News (CPS)

11 September 2018

Cpl delivers record revenues in excess of €500m and double-digit growth across all key metrics

Cpl Resources Plc

Results for the Full Year Ended 30 June 2018

Dublin, 11 September 2018: Cpl Resources Plc ('Cpl', the 'Group' or the 'Company'), Ireland's leading employment services group, today announced results for the year ended 30 June 2018.

Financial Highlights

· Revenue increased by 15% to €522.7m

· Gross profit increased by 16% to €83.2m

· 18% increase in Profit before tax to €18.5m

· Earnings per share of 56.6 cent, a 30% increase on 2017

· Total Dividend per share of 13.5 cent, up 17% on 2017

· Capital return of €25m to shareholders during the year

Operational Highlights

· Continued growth in flexible talent segment, representing 68.4% of gross profit

· Development of new innovative technology solutions to enhance recruitment process

· Lorna Conn appointed as Group CFO in October 2017 and to the Board in July 2018

John Hennessy, Chairman commented:

"The Group's results for the year ended 30 June 2018 show double-digit growth across all key metrics, reflecting strong growth across our business sectors and markets. This performance reflects the clear focus by our team on continuing to grow our business, evolving our product offering to meet shifting workforce preferences and concentrating on managing our cost base and improving margins.

Our success is driven by the talent, expertise and commitment of our people and their dedication to delivering service excellence to our candidates and clients. We are fortunate to have the calibre of people we have in Cpl, who believe deeply in what we do and are committed to delivering service standards to the highest level.

Current market conditions are favourable with high demand for talent and low unemployment rates in our key markets. We expect that these factors, together with the efforts of our people, will allow us to deliver further growth in our business during the financial year to 30 June 2019."

Anne Heraty, CEO added:

"In the financial year to June 2018 revenue increased by 15% to €522.7 million, gross profit increased by 16% to €83.2 million and profit before tax increased by 18% to €18.5 million. After returning €25 million to shareholders by way of fixed price tender offer, we closed the year with a net cash balance of €24.2 million demonstrating the strong cash generating characteristics of the business.

Our vision as we grow is to be the world's best at transforming our clients through total talent solutions and experiences. As the world of work evolves and employee and employer expectations change, the demand for flexibility has strengthened. As a result, we grew our flexible talent net fee income by 24.5% to €56.9 million during the year (2017: €45.7 million). We finished the year with 12,296 skilled people working on behalf of Cpl on client engagements."

For Further Information:

Anne Heraty, CEO, Cpl Resources Plc: +353 1 614 6000

Mark Buckley, Deputy CEO & COO, Cpl Resources Plc: +353 1 614 6000

Lorna Conn, CFO, Cpl Resources Plc: +353 1 614 6000

Ivan Murphy/ Daragh O'Reilly, Davy Corporate Finance: +353 1 679 6363

Melanie Farrell/ Jonathan Neilan, FTI Consulting: +353 1 765 0888

Cpl Resources Plc

Chairman's Statement

The financial year ended 30 June 2018 has been another year of growth for Cpl.

Financial highlights of the Group's performance include:

- Revenue increased by 15% to €522.7m

- Gross profit increased by 16% to €83.2m

- 18% increase in Profit before tax to €18.5m

- Earnings per share of 56.6 cent (2017: 43.7 cent)

- Total Dividend per share of 13.5 cent (2017: 11.5 cent)

* Adjusted operating profit and adjusted profit before tax exclude non-cash charges relating to the Group's Long-Term Incentive Plan (LTIP) and currency translation

** As a % of gross profit

The Group's results for the year ended 30 June 2018 show double-digit growth across all key metrics, reflecting strong growth across our business sectors and markets. This performance reflects the clear focus by our team on continuing to grow our business, evolving our product offering to meet shifting workforce preferences and concentrating on managing our cost base and improving margins.

Our revenue grew by €67.5 million in the financial year, up 15% on the prior year. Group gross profit grew by 16% and profit before tax grew by 18% in the year. The global demand for flexible labour solutions continues to build, with our flexible talent fee income growing by 24.5% during the year.

The impact of changes in regulation in the UK healthcare sector continue to be felt, contributing to modest permanent fee growth to €26.3 million (2017: €26.1m). Our operating profit margin is in line with the previous financial year at 3.4%, which, given the shifting mix of business from permanent recruitment to flexible talent solutions, is a positive performance. Adjusted for non-cash charges relating to the Group's Long-Term Incentive Plan (LTIP) and currency translation, the operating margin increased by 30 basis points to 3.8% in the financial year.

At year end, the Group had a strong balance sheet, with net assets in excess of €92 million, down from €103.7 million in the prior year. We ended the year with net cash in excess of €24 million, after returning €25.0 million to our shareholders and funding the working capital demands of our growing flexible talent business. Cpl is a profitable, cash generative business and the continued strength of the Group's balance sheet, its access to external financing and its capabilities in working capital management positions the Company well for future growth.

Tender Offer

During the year, the Group returned €25.0 million of cash to its shareholders by way of a fixed price tender offer. Having considered a range of strategic and financial options to enhance shareholder value, particularly taking account of the continued generation of positive cash flows by the Group, the Board considered this to be the most effective use of those shareholder funds. The tender offer was over-subscribed and successfully executed, with the Company repurchasing and cancelling 3,703,703 shares at a price of €6.75 per share and reducing the issued share capital by approximately 12%. This process was overseen by an independent committee of the Board.

People

A key driver of our success is our ability to connect with people and match them to the needs of our clients. We can only do this as well as we do by having great people ourselves. Our success is driven by the talent, expertise and commitment of our people and their dedication to delivering service excellence to our candidates and clients. We are fortunate to have the calibre of people we have in Cpl, who believe deeply in what we do and are committed to delivering service standards to the highest level.

On behalf of the Board, I would like to thank all of our people for their commitment, dedication and hard work during the year. I would also like to thank our clients and candidates for their support and their continued loyalty to the Cpl Group.

Board & Executive announcements

In July 2018, Lorna Conn was appointed to the Board of Cpl. Since joining as CFO in October 2017, Lorna has made a significant impact on all areas of the business and we look forward to having the benefit of her experience, energy and expertise on the Board as Cpl pursues its next phase of growth.

Earnings per Share, Proposed Dividend & Dividend Policy 

Cpl has delivered earnings per share in the twelve months to 30 June 2018 of 56.6 cent, a 30% increase on the prior year, reflecting the growth in profitability in the year and the benefit of the reduced share capital base arising from the tender offer. In deciding how best to use our free cash flow, the Board continues to prioritise the maintenance of a strong balance sheet, to allow us to take advantage of opportunities to invest in future growth, both organically and through acquisition. The Group also has a progressive dividend policy which reflects the underlying earnings growth and continued financial strength of Cpl.

The Board is recommending a final dividend of 7.15 cent per share. This will bring the total dividend for the year to 13.5 cent per share. The dividend, if approved by the shareholders, will be payable on 5 November 2018 to shareholders on the Company's register at the close of business on the record date of 12 October 2018.

Outlook

Economic indicators and employment trends are broadly positive in our principal markets. Our industry remains highly competitive and our continued growth is sensitive to the impact of political, regulatory and economic events globally. With the terms of the UK's planned departure from the EU still unclear, Brexit continues to give rise to uncertainty. We will continue to monitor developments closely and assess and respond to their implications for our business. 

Current market conditions are favourable with high demand for talent and low unemployment rates in our key markets. We expect that these factors, together with the efforts of our people, will allow us to deliver further growth in our business during the financial year to 30 June 2019.

John Hennessy

Chairman

11 September 2018

Chief Executive's Review

In the financial year to 30 June 2018, Cpl delivered double-digit growth in revenues, gross profit and profit before tax. Our revenue increased by 15% to €522.7 million, gross profit increased by 16% to €83.2 million and profit before tax increased by 18% to €18.5 million. We returned €25.0 million of cash to our shareholders, closing the year with a net cash balance of €24.2 million and demonstrating the strong cash generating characteristics of the business. We continue to harness the global shift in workforce preferences and our business model has evolved and adapted to meet these needs.

Financial Highlights

The Group increased its revenue by €67.5m to €522.7 million in the year to 30 June 2018 (2017: €455.2 million). Gross profit grew by 16% to €83.2 million (2017: €71.8 million). The Group's gross margin was 15.9% (2017: 15.8%). Profit before tax was €18.5 million (2017: €15.8 million) and our earnings per share was 56.6 cent (2017: 43.7 cent).

Our operating expenses (excluding non-cash charges) were €63.4 million, 14% higher than last year, correlating with our increase in gross profit and reflecting the fact that the majority of our cost base is made up of staff related costs. Our conversion of gross profit to adjusted profit before tax was 24.5% (2017: 22.9%).

Our balance sheet is strong with net assets of €92.5 million at 30 June 2018 (2017: €103.7 million). Cash flow in the year was strong with a closing net cash balance of €24.2 million. This follows the return of €25.0 million of cash to shareholders during the year, demonstrating the profitable, cash generative nature of our business and the effectiveness of our working capital management.

The interim dividend paid was 6.35 cent per share. The Board is recommending a final dividend of 7.15 cent per share for the year to 30 June 2018, resulting in a total dividend per share for the year of 13.5 cent, a 17% increase from the prior year.

Operations Review

Cpl's capability spans the full employment continuum and we deliver a range of services through two operating segments - flexible talent solutions ('Flexible Talent') and permanent recruitment ('Permanent'). Flexible Talent includes managed services, temporary and contract recruitment and strategic talent advisory services. We operate through distinct specialist brands in a wide range of sectors including technology, finance and legal, healthcare, pharmaceutical, life sciences, sales, engineering, HR, light industrial and office administration. We have a diverse range of clients from market leading multinationals to small and medium sized enterprises. Our clients operate in a challenging labour market, characterised by labour and skill-set shortages, and where the fight for talent has never been more pronounced.

Our managed services business is going from strength to strength, delivering projects to multiple clients including leading organisations in the financial services, technology, healthcare and pharmaceutical sectors. Cpl assumes accountability for selected business processes on behalf of clients, creating measurable improvements and cost savings for our clients. Cpl are typically engaged on multi-year contracts, becoming trusted partners to our clients and it is the strategic nature of these partnerships that add immeasurable value to our clients' businesses.

Our temporary and contract recruitment service offers clients flexible recruitment solutions, including high-volume contingency recruitment and seasonal ramp-ups. Cpl's dedicated recruiters work with clients to identify the best short and long-term solutions, each with the flexibility to increase or decrease headcount around changing business needs.

Strategic talent advisory services cater for the broader supports required by our clients to further evolve and transform their businesses. These cover a wide range of services that include talent strategy development, employee value proposition, employee wellness and employer branding. The complexity of the world's workforce preferences continues to evolve but one thing we can be sure of is this - a people centric approach to talent management is a must in today's fight for talent.

* Adjusted operating margin excludes non-cash charges relating to the Group's Long-Term Incentive Plan (LTIP) and currency translation

** as % of gross profit

Our gross margin in the year to 30 June 2018 was 15.9%, an increase of 10 basis points from the prior year. Most of our growth occurred in our flexible talent business, where we improved our margin to 11.5% (2017: 10.7%), driven by a continuing focus on margin.

Our permanent placement business which generates almost 100% gross margin represented 31.6% of total gross profit whereas in the year to 30 June 2017 it was 36.3% of total gross profit. Despite the changed business mix, our operating margin was in line with the previous year at 3.4% but ahead by 30 basis points when adjusted for non-cash charges.

Taking a long-term view, we will continue to invest in people, key technology areas and structured innovation processes as our business adapts to new workforce preferences. Through these measures we expect to see further improvement in our operating margin.

Flexible Talent

As the world of work evolves and employee and employer expectations change, the demand for flexible talent solutions has strengthened. As a result, we grew our flexible talent net fee income by 24.5% to €56.9 million during the year (2017: €45.7 million). Margin in the year to 30 June 2018 was 11.5% (2017: 10.7%). We finished the year with 12,296 skilled people working on behalf of Cpl on client engagements.

Flexible talent solutions add a variable cost component to a company's otherwise fixed labour costs. These solutions offer a more dynamic workforce and address a growing need in candidates for greater flexibility. Highly skilled professionals, particularly in ICT, finance and engineering, are choosing to work on a project or contract basis.

This global shift in working preferences presents a huge opportunity for Cpl, with potential for significant growth within our managed services division.

Permanent

Most of our permanent placement work is undertaken on a contingent basis, which means we only generate revenue when the candidate successfully starts in a role. We operate in a competitive environment where the speed and quality of delivery is a differentiator. We will continue to invest in Artificial Intelligence (AI) now and into the future to optimise the placement cycle. However, technology alone is not sufficient to ensure that an individual is the right fit for a business. Cpl combine the power of AI and analytics to support our skilled recruitment professionals who bring the personal touch to the process, focussing on the qualities of the candidate and culture fit in recommending the right recruitment decision for our clients.

International nurse recruitment in the UK remains challenging as a result of changes in regulation and continuing Brexit uncertainty. The demand case remains for nurses and healthcare professionals and we are committed to the UK healthcare market in the longer-term. Divisions such as technology, pharma and financial services performed well during the year.

Permanent net fee income increased by 1% to €26.3 million (2017: €26.1 million). The economic outlook for the geographies in which we operate is favourable and the demand for talent in the technology, pharma and financial services sectors remains strong. Cpl is continuing to add selectively to our teams in certain sectors to support growth in permanent placement fees.

Future of Work & Technology

The world of work is changing and evolving, and Cpl is at the centre of this evolution. Advancements in technology are reshaping how, where and when we work with both employers and employees adapting to a business environment that is more uncertain, global, competitive and diverse. However, people remain at the centre of business success and access to people with the right skills and talent is one of the key issues of concern to CEOs. 77% of those surveyed in the recent World Economic Forum CEO survey voiced concern that skills shortages could threaten their organisation's growth. In parallel, employees are adapting to new ways of working and are looking for more flexibility, which is highlighting a growing trend towards temporary and contract work - a trend which plays to Cpl's strength, with over two thirds of our gross profit coming from our Flexible Talent segment this year.

Technology is revolutionising our industry and changing the way in which we traditionally recruit. As a market leader in our industry we are committed to staying at the forefront of new technology. Working with market leading technology partners, our IT team have developed two scalable AI enabled apps, Apollo and Merlin. Combining machine learning and people skills, Apollo and Merlin empower our consultants to access and source candidates faster and better, making the recruitment process more efficient. By embracing AI we are using valuable data driven insights to improve some of the most important hiring metrics for our clients such as quality of hire, time to hire and cost to hire.

During the year we launched a web and mobile based app ('MyCpl') that deploys the latest in smartphone technology for booking and managing temporary staff. The app manages all aspects of front office administration, enabling workers to roster themselves on available client shifts. To date, MyCpl has been successfully deployed to over 30% of our flexible healthcare workers in Ireland and the feedback has been very positive. People have embraced this new way of working, recognising the efficiency and service excellence it provides.

Our investment in technology always has the dual purpose of making it easier for our clients to work with us and improving the productivity of our people.

GDPR

To build on the existing strong data protection practices within the Group, a number of additional measures were introduced to support compliance with the new EU General Data Protection Regulation that came in to force in May 2018. An updated privacy policy was produced and circulated to all two million of our candidates with options to unsubscribe from our services. Additional automated procedures were implemented to provide further transparency to our candidates on where their data is being stored and transferred. All Cpl staff have also undergone additional online training and assessment to ensure that the regulations are embedded into our core business practices.

Strategy

Over the past 28 years Cpl's growth strategy has evolved and continues to evolve with the changes taking place in the workplace. We are delivering on our strategy of profitably growing our business while developing a balanced business mix in order to avoid an overdependence on any one service, sector or geography.

Our vision as we grow is to be the world's best at transforming our clients through total talent solutions and experiences. The world of work is changing. To help guide us into the future and create solutions for our clients and candidates we have set ourselves three areas of focus:

1. Future Ready - to continue be at the leading edge of the future of work, so we can enable our clients, candidates and consultants to be future ready.

2. Client First - to continue to adopt a people centred, strategic approach to how we deal with our clients, called 'the Cpl Way'.

3. Total Solutions - to continue to design and deploy real world ready integrated solutions that will create transformational value appropriate to the needs of our clients and our candidates.

This combined with our investment in technology and AI will provide us with a strong platform for future growth.

People and Culture

Our talented and experienced people are central to Cpl's success. They are committed to our core values of accountability, respect, customer focus, effective communication and empowerment. By holding ourselves to these values, we have created a culture in Cpl that is engaging and motivating for our people. In 2018, Cpl was recognised in the Great Place to Work program's large category for the fourth consecutive year. This recognition is of great value to Cpl, as attracting and retaining the best talent is key to our continued operational excellence. I would like to thank our colleagues for their commitment to putting our clients and candidates first and for making Cpl a truly great place to work.

Management Team & New Board Member

I am delighted to welcome our CFO, Lorna Conn, to the Board of Cpl. Since joining in October 2017, Lorna has made a valuable contribution to all aspects of Cpl's business and is adding depth to the senior leadership team as we prepare for our next phase of growth. I am delighted to welcome Barry Winkless, into the newly created role of Strategy and Innovation Director, signalling an exciting chapter for Cpl as we move forward with our growth strategy.

I am also delighted to welcome our new colleagues who joined Cpl during the year and I want to thank our loyal clients for their partnership and support during the year.

Outlook

Market conditions across the sectors in which we operate are positive. Economic trends are favourable with strong employment growth in Ireland and across the Eurozone. The unemployment rate in Ireland is the lowest recorded in over a decade at 5.6%. Investment continues to be made within FDI across key sectors including Financial Services, ICT and Pharma, with a renewed focus on regional diversification in Ireland. Our national footprint will serve us well in this regard.

Despite this, risks remain. We are mindful of the remaining uncertainty that Brexit creates in our core markets and we are monitoring any potential impacts, both positive and negative, of Brexit on our business.

From a longer-term point of view, we have a strong business model, operating in attractive markets, with a global client reach. Our priorities for 2019 will be to further develop our strategy, stay focused on growing our net fee income and profit before tax and building on our footprint internationally. Our focus is to support clients in delivering talent solutions that can grow and transform their business, particularly in sectors facing cost or scaling challenges.

Cpl has a strong balance sheet with net assets in excess of €92 million, generated over 28 years of continuous profitability. We believe our balance sheet and strong cash flow generation gives us the resources to invest in the growth and expansion of our business while also providing an attractive return to shareholders.

Anne Heraty

Chief Executive Officer

11 September 2018

Financial Statements

The financial statements for the year ended 30 June 2018 can be accessed below:

http://www.rns-pdf.londonstockexchange.com/rns/3176A_1-2018-9-10.pdf