CPL Resources PLC Final Results (7231L)

TIDMCPS

RNS Number : 7231L

CPL Resources PLC

10 September 2019

10 September 2019

Cpl delivers record results with exceptional earnings growth.

Launch of Covalen, Cpl's managed solutions brand.

Cpl Resources Plc

Results for the Full Year Ended 30 June 2019

Dublin, 10 September 2019: Cpl Resources Plc ('Cpl', the 'Group' or the 'Company'), Ireland's leading workforce solutions group, today announced its results for the year ended 30 June 2019.

Key Financial Highlights

   --     8% increase in revenues to EUR564.9m 
   --     16% increase in gross profit (net fee income) to EUR96.3m 
   --     33% increase in profit before tax to EUR24.6m 
   --     37% increase in earnings per share to 77.3 cent 
   --     41% increase in total dividend per share to 19.0 cent per share 
   --     Gross profit margin up 110 basis points to 17% 
   --     Operating margin up 100 basis points to 4.4% 
   --     Strong net cash position of EUR40.1m, up from EUR24.2m in 2018 

Key Operational Highlights

   --     Continued growth across all segments, Flexible Talent now representing 71% of gross profit 
   --     Launch of Covalen, Cpl's managed solutions brand 
   --     Further investment in technology team and development of new innovative technology solutions 

-- Further investment in the Future of Work Institute, Cpl's platform for thought leadership and the co-creation of workforce solutions with our clients

John Hennessy, Chairman, commented:

"I am very pleased to report exceptionally strong earnings growth for the Group for the year ended 30 June 2019, reflecting a strong performance across all of our business. This result highlights our clear focus on continuing to grow the business, while evolving our offering to meet shifting market demands and continuing to manage our cost base to improve margins.

At its heart Cpl is a people business and our culture is one of openness, respect and clear communication. We believe that this culture and the calibre of our people enables us to deliver consistently outstanding service to our clients and candidates, and that it has contributed significantly to an excellent performance across the business in the past year."

Anne Heraty, CEO, added:

"Cpl has delivered another year of exceptional earnings growth and strong cash conversion, while increasing our net fee income by 16% and our profit before tax by 33%.

We continue to embrace a global demand for workforce solutions and our business model has evolved and adapted in response. Our managed solutions division is experiencing strong, consistent growth and we have recently branded this division Covalen, clearly defining our value proposition and positioning ourselves for future growth both domestically and internationally."

For further information, please contact:

Cpl Resources Plc + 353 1 614 6000

Anne Heraty, CEO

Lorna Conn, CFO

Davy Corporate Finance (Nomad and Euronext Growth Advisor)

Ivan Murphy/ Daragh O'Reilly: [phone]

FTI Consulting (Media Relations)

Melanie Farrell/ Jonathan Neilan: [phone]

About Cpl Resources Plc

Cpl Resources Plc is a global provider of talent and workforce solutions, with over 13,000 employees across 47 offices worldwide. 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 and we operate across the full talent spectrum from permanent, contract and temporary recruitment to the provision of managed solutions and strategic talent advisory services.

Forward-Looking Statements

This announcement contains forward-looking statements, which are subject to risks and uncertainties. These forward-looking statements are based on current expectations and projections about future events. The Group believes that current expectations and assumptions with respect to these forward-looking statements are reasonable. However, because they involve known and unknown risks, uncertainties and other factors, which are in some cases beyond the Group's control, actual results or performance may differ materially from those expressed or implied by such forward-looking statements.

Cpl Resources Plc

Chairman's Statement

The Group has delivered exceptional earnings growth in the year to 30 June 2019, reflecting strong growth across all our business sectors and markets. This performance reflects the clear focus by our team on continuing to grow our business, expanding our product offering to meet shifting market demands and concentrating on managing our cost base and improving margins.

 
 Full year highlights               Year ended   Year ended   % change 
  EUR000s except where indicated          2019         2018 
---------------------------------  -----------  -----------  --------- 
 
 Revenue                               564,858      522,691         8% 
 Gross profit                           96,258       83,150        16% 
 Adjusted Operating profit*             25,726       19,737        30% 
 Adjusted Profit before tax*            25,492       20,402        25% 
 
 Operating profit                       24,818       17,881        39% 
 Profit before tax                      24,584       18,546        33% 
 Earnings per share                  77.3 cent    56.6 cent        37% 
 Dividend per share                  19.0 cent    13.5 cent        41% 
---------------------------------  -----------  -----------  --------- 
 
 Conversion ratio ** 
 Adjusted Operating profit               26.7%        23.7% 
 Adjusted Profit before tax              26.5%        24.5% 
 Operating profit                        25.8%        21.5% 
 Profit before tax                       25.5%        22.3% 
---------------------------------  -----------  -----------  --------- 
 

* 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

Revenue grew by EUR42.2 million to EUR564.9m, up 8% on the prior year. Group gross profit grew by 16% and profit before tax grew by 33% in the year. The global demand for flexible workforce solutions continues and our Flexible Talent fee income grew by 21% during the year.

Operating profit margin was 4.4% (2018: 3.4%) which, given the shifting mix of business from permanent recruitment to flexible talent, is testament to our commitment to improving margins. Adjusted for non-cash charges relating to the Group's Long-Term Incentive Plan (LTIP) and currency translation, the operating margin increased by 80 basis points to 4.6% in the financial year.

At year end, the Group had a strong balance sheet, with net assets of EUR110.4 million, up from EUR92.5 million in the prior year. We ended the year with net cash of EUR40.1 million, up EUR15.9 million from the prior year, after funding the working capital demands of our growing Flexible Talent division. 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.

Culture and Values

Cpl's culture is one of openness, respect and clear communication. We encourage innovation and remain focused at all times on our customers, responding quickly to their changing needs. We believe that this culture enables us to deliver consistently outstanding service to our clients and candidates, and that it has contributed significantly to an excellent performance across the business in the past year.

People

At its heart Cpl is a people business. We provide workforce solutions by matching people with opportunities and by connecting people to other people. We do this to a consistent standard of excellence because of the quality of our own people and their commitment to our culture and values.

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

Board Developments

In October 2018, Elaine Coughlan was appointed to the Board as an independent Non-Executive Director. Elaine is a highly regarded technology investor and has extensive experience in scaling technology companies worldwide. She has contributed very positively to the Board since her arrival and we look forward to continuing to work with her in the future.

In January 2019, Oliver Tattan retired from the Board having been a Non-Executive Director of the Group since 2007. On behalf of my fellow Directors and all of our people, I would like to thank Oliver for the outstanding contribution he made to Cpl's success during his tenure.

As part of the ongoing process of refreshing the Board and as previously indicated, Breffni Byrne will retire from the Board during the current financial year ending 30 June 2020. We look forward to Breffni's continuing valuable contribution, as a Board member and as Chairman of the Audit Committee, until then. The Company intends to appoint an additional, independent Non-Executive Director and will begin a process to identify suitable candidates. A further update will be provided in due course.

Mark Buckley will leave the Group and will step down from the Board on 30 September 2019. Mark joined Cpl in 2013 as Chief Financial Officer and since then has been appointed to the Board and to the executive positions of Chief Operations Officer and Deputy Chief Executive. Since Mark joined us Cpl has enjoyed substantial profitable growth and he has contributed significantly to that success. We are grateful to Mark for his commitment and contribution and wish him well for the future.

Cash

The Group had a net cash balance of EUR40.1 million as at 30 June 2019 (2018: EUR24.2 million). In the twelve months to 30 June 2019, EUR27.1 million was generated in cash flow from operating activities before tax and changes in working capital (2018: EUR20.6 million). Although the growth in our Flexible Talent business requires significant investment in working capital, we recorded a strong net cash inflow of EUR15.9 million in the year (2018: EUR15.7 million (excluding impact of tender offer)), demonstrating the profitable, cash generative nature of our business and the effectiveness of our working capital management.

Allocation of our cash surplus is closely monitored by the Board. We prioritise organic expansion and are selective in our acquisition activity, making acquisitions only where we perceive a strong fit with our existing business or to drive innovation in our organisation. We continue to adopt a progressive dividend policy and are pleased to have delivered a 41% increase in the dividend per share for the year, further details of which are outlined below.

Earnings per Share & Proposed Dividend

Cpl has delivered earnings per share in the twelve months to 30 June 2019 of 77.3 cent, a 37% increase on the prior year, reflecting the growth in profitability in the year. The Board is recommending a final dividend of 11.0 cent per share. This will bring the total dividend for the year to 19.0 cent per share. The dividend, if approved by the shareholders, will be payable on 4 November 2019 to shareholders on the Company's register at the close of business on the record date of 11 October 2019.

Outlook

We operate in a cyclical industry which is sensitive to changes in economic activity within our core markets. While our business model has evolved over the years to include more secure revenue streams, the visibility of a material proportion of our net fee income remains short term.

As long as the terms of the UK's planned departure from the EU remain unclear Brexit will continue to give rise to uncertainty for businesses in all sectors, including our own. We will continue to monitor developments closely and assess and respond to their implications for our business.

Aside from the risks posed by Brexit uncertainty, economic indicators in our most important markets are broadly positive, and we expect to achieve further profitable growth in the months ahead.

John Hennessy

Chairman

10 September 2019

Chief Executive's Review

In the financial year to 30 June 2019, Cpl delivered exceptional earnings growth and strong cash conversion. We continue to embrace a global demand for workforce solutions and our business model has evolved and adapted in response. Our managed solutions division is experiencing strong, consistent growth and we have recently branded this division Covalen, clearly defining our value proposition and positioning ourselves for future growth both domestically and internationally.

Financial Highlights

Group revenue increased by EUR42.2 million to EUR564.9 million in the year to 30 June 2019 (2018: EUR522.7 million). Gross profit grew by 16% to EUR96.3 million (2018: EUR83.2 million) and gross margin was 17.0% (2018: 15.9%). We delivered a 33% increase in profit before tax to EUR24.6 million (2018: EUR18.5 million) and our earnings per share is up 37% to 77.3 cent (2018: 56.6 cent).

Group operating expenses (excluding non-cash charges) were EUR70.5 million, an 11% increase on last year, in line with the increase in gross profit and reflecting the fact that the majority of our cost base comprises staff related costs. Our conversion of gross profit to adjusted profit before tax was 26.5% (2018: 24.5%).

Our balance sheet is strong with net assets of EUR110.4 million at 30 June 2019 (2018: EUR92.5 million). Cash flow in the year was excellent with a closing net cash balance of EUR40.1 million, up from EUR24.2 million in the prior year. This was achieved despite the 21% growth in our Flexible Talent division, demonstrating the profitable, cash generative nature of our business and the effectiveness of our working capital management.

We paid an interim dividend of 8.0 cent per share during the year. The Board is recommending a final dividend of 11.0 cent per share for the year to 30 June 2019, resulting in a total dividend per share for the year of 19.0 cent, a 41% increase from the prior year.

Operations Review

Cpl's capability spans the full talent spectrum and we deliver a range of services through two operating segments - flexible workforce solutions ('Flexible Talent') and permanent recruitment ('Permanent'). Flexible Talent includes managed solutions, temporary and contract recruitment, training 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 competition for talent has never been more pronounced.

Our managed solutions business (Covalen) is experiencing strong growth, 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 is typically engaged on multi-year contracts, becoming trusted strategic partners to our clients and adding significant value to their 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 optimum 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 and given the highly competitive environment for talent, a people centric approach to talent management is a must.

Key Performance Indicators 2019 2018

Gross margin 17.0% 15.9%

Adjusted Operating margin*

 4.6%               3.8% 

Operating margin

         4.4%               3.4% 

Conversion Ratio**

Adjusted Operating profit

   26.7%             23.7% 

Adjusted Profit before tax

   26.5%             24.5% 

Operating profit 25.8% 21.5%

Profit before tax 25.5% 22.3%

Permanent fees as % of the total gross profit 28.8%

31.6%

Flexible Talent fees as % of the total gross profit 71.2%

68.4%

Flexible Talent staff headcount at the year-end 12,493

12,296

Average number of recruiters during the year 567

590

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

** as % of gross profit

Gross margin in the year to 30 June 2019 was 17.0%, an increase of 110 basis points from the prior year. An increase in our Permanent net fee income contributed in part to this growth but it was primarily driven by our Flexible Talent division through a combination of volume and pricing improvements.

Our permanent placement business, which generates almost 100% gross margin, represented 29% of total gross profit compared to 32% in the prior year. Despite the developments in our business mix, our operating margin was 4.4%, up 100 basis points on last year and 80 basis points when adjusted for non-cash charges. The full yearly cost of recent key hires and the investment in our technology team will not be accounted for until next year but, nonetheless, it underlines our commitment to improve the Group's operating margin.

Flexible Talent

As the world of work evolves and both employee and employer expectations change, the demand for flexible workforce solutions continues to strengthen. As a result, we grew our Flexible Talent net fee income by 21% to EUR68.5 million during the year (2018: EUR56.9 million). Gross margin in the year to 30 June 2019 was 12.8% (2018: 11.5%) and we finished the year with 12,493 skilled people working on client engagements on behalf of Cpl.

Flexible workforce 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 desire for greater flexibility among candidates. Highly skilled professionals, particularly in ICT, finance and engineering, are increasingly 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 Covalen.

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 enough to ensure that an individual is the right fit for a business. Cpl combines 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 due to changes in regulation and continuing Brexit uncertainty. Nonetheless, there continues to be high demand for nurses and healthcare professionals, and we feel there is great opportunity in the UK healthcare market in the longer-term.

Permanent net fee income increased by 6% to EUR27.8 million (2018: EUR26.3 million). Divisions such as technology, pharma and financial services performed particularly well during the year, where demand for skilled talent is at a premium. In today's digitally driven marketplace companies are becoming increasingly dependent on technology to deliver for their customers and drive efficiency. This combined with increased regulation, compliance and the growing risks of cyber security indicates that the demand for technology and finance professionals will continue to grow.

Technology

Technology is cited as the biggest driver of change in the world today. It is revolutionising our industry and changing the way in which we traditionally recruit. As a market leader we are committed to staying at the forefront of technological shifts and we have taken many initiatives this year to drive our technology capabilities forward. Our objective is two-fold - to drive differentiation in our value proposition and achieve further operational excellence in our service delivery.

We continue to partner with innovative technology companies and have custom built and deployed three scalable AI applications based on the latest machine learning and deep learning toolsets. These applications are transforming the way in which we source and match candidates, improving some of the most important hiring metrics for our clients such as quality of hire, time to hire and cost to hire. Our web and mobile based rostering app ('MyCpl') has been successfully deployed to over 50% of our flexible healthcare workers in Ireland and the feedback has been very positive. Clients and candidates alike have embraced this new way of working, recognising the efficiency and service excellence it provides.

We recently appointed a Technology Advisory Board to advise and guide us on our technology and digital strategy. This has proven to be a great outlet to channel our technological curiosity and to validate our thinking when it comes to investment in technology. Technology is a key enabler of our business strategy and we have strengthened our IT team during the year with the creation of new roles including the appointment of a Chief Information Officer, James Louttit.

Strategy

We believe deeply in the transformational effect of matching the right candidate to the right organisation. Our vision as we grow is to be world-class at supporting transformation in our clients through total talent solutions and experiences. The Group's strong performance in the year to June 2019 is a testament to the success of our strategy for growth. Our strategy is founded on three strategic pillars to deliver growth - 'Future Ready', 'Client First' and 'Total Solutions'.

Future Ready

We continue to be at the leading edge of the future of work and have recently strengthened the capabilities within our Future of Work Institute, where we focus on co-creating new solutions with our clients. We continue to adopt a people centred, strategic approach to how we deal with our clients ('the Cpl Way') and to design and deploy 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 the support of our partners provides us with a strong platform for future growth.

Client First

Our strategy is based upon building broader and deeper relationships with clients. During the year we implemented a new strategic account management structure. This structure enables us to provide clients with the full suite of our talent solutions and it enables us to generate new business.

Total Solutions

Given the new opportunities arising from an increasingly solutions-oriented market, during the year Cpl embarked on the development of a defined managed solutions proposition to best position this division for further growth. The new brand Covalen is already operating in Ireland and will be launched in target European countries later in the financial year. Covalen will provide a range of people-centric managed & design solutions which will include Managed Services Provision, Business Process Outsourcing and Consulting & Solution Design. These solutions will be fully customised based on clients' requirements and engagements will be supported by world-class experts, curated technology platforms and a set of unique processes developed through real-world experiences. This signals an exciting chapter for Cpl as we drive further momentum in our managed solutions offering.

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. These values underpin our culture and ensure the excellence of our services and solutions. In addition to our shared commitment to deliver for our clients and candidates, there is a strong, collective passion for helping others to reach their full potential through the support of local communities and charitable organisations.

In 2019, Cpl was recognised in the Great Place to Work programme's large workplace category for the fifth consecutive year. This recognition is of great value to Cpl as it demonstrates the positive employee experience that our people are having. It also supports us in attracting and retaining the best talent which is key to our continued success. 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

Mark Buckley has resigned as Chief Operations Officer and Deputy Chief Executive of the Group with effect from 30 September 2019 to pursue other opportunities. Mark has made a great contribution to the success of Cpl's business since he joined the Group in July 2013, first as Chief Financial Officer and latterly as COO/Deputy CEO. On behalf of the Group as a whole, I would like to thank Mark for his commitment to Cpl and wish him every success in his future career.

I am delighted to welcome James Louttit to the newly created role of Chief Information Officer. This is an important leadership appointment for Cpl as we move forward with our growth strategy and further investment in technology.

I am also delighted to welcome all 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

Our record results and progress achieved in the year to June 2019, has positioned us well for the year ahead. We have strengthened our managed solutions offering with the launch of Covalen, where we have already had some strong business wins. We are also seeing strong demand for skilled talent particularly in the technology, finance and pharma sectors.

Trading in the current year has started well and we are positive about the sectors in which we operate. We are mindful of the potential macro-economic challenges driven by Brexit and the potential for changes to levels of investment and employment within our client base. Should conditions change, we are prepared, we have flexibility in our cost base and we can moderate our growth plans.

Our goal for 2020 is to produce another year of growth in revenue and profitability, we are encouraged by our pipeline and the opportunities for growth that we have identified. We will continue to invest in technology which we believe will improve our productivity and enable us to better support our clients by delivering innovative and impactful talent solutions that can grow and transform their businesses.

Cpl has a strong balance sheet with net assets in excess of EUR110 million, generated over 30 years of continuous profitability. We believe our balance sheet and strong cash flow generation gives us the resources to withstand potential macro-economic challenges, and also to invest in the growth and expansion of our business and provide an attractive return to shareholders.

Anne Heraty

Chief Executive Officer

10 September 2019

Financial Statements

The financial statements for the year ended 30 June 2019 can be accessed below:

http://www.rns-pdf.londonstockexchange.com/rns/7231L_1-2019-9-9.pdf

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September 10, 2019 02:00 ET (06:00 GMT)