Matchtech have now released their interim results for the half year ending 2013.
After the restructuring in reporting, which now includes Engineering (Aerospace, Automotive, Energy, Infrastructure, Marine and Science sectors) and Professional Services (Barclay Meade, Alderwood and Connectus, the new brand for the technology sector) we can see that revenues are up in both sectors. Cost of sales are also up, however, as are admin expenses to leave the operating profit a decent £923K up, at £4.4M. Higher finance costs and income tax erode this somewhat and the profit for the year is £740K higher at just under £3M. I see this as a pretty decent performance.
Compared to the end of last year, the assets at the 6 month point of this year were down by £2.4M. This was almost entirely due to the £2.6M reduction in Trade Receivables during the period. Although trade receivables were down, the amount of trade receivables overdue has grown from £7.4M at the end of last year to £12.2M at the current time. This is a slight concern and something that I hope the board have an eye on. Thankfully, liabilities were also down and an increase in trade and payables of £3.4M was more than counteracted by the £6.6M reduction in the bank loan. This has resulted in the net assets of the group increasing by £830K to £28.5M.
Operating cash flow for the six months was nearly £5M, just under £1M up on last year. This was enhanced by good control over working capital and the resultant net cash from operations was £9.3M, up by £877K on last year. There was a very small amount of capital expenditure, only £185K (2011: £402K) was spent on purchases of property plant & equipment and only £17K (2011: £597K) was spent on intangibles. The higher figures last year included the £400K acquisition of XRS. The only substantial outflow of cash came in the form of dividends, at a similar level to last year. Overall, cash flow was an impressive £6.6M. However, this would have been rather lower had there not been such an increase in payables.
The majority of profit is made in the Engineering business but Professional services also increased profits in the period. Equally, most profits are made in the UK, but the non UK business was actually profitable in the first half of the year (£32K), which is a change. One client accounted for £26.9M of revenue, but this is the only customer that accounted for more than 10% of revenues.
Underlying permanent fees remained flat for the first half of the year, held back by candidate confidence and incumbent employer counter-offers, despite the increased client demand.
The engineering division fared well over the half year with contract fees up 9% and permanent fees remaining level. In Infrastructure, major UK rail and highways projects increased demand for contract staff but fees remained broadly flat. Fees for the Energy sector are up 5%, driven by strong demand for talent in Oil and Gas. Strong demand in Asia has driven aircraft deliveries to record levels which had the effect of increasing Aerospace fees by an impressive 13%. Likewise, automotive has had a very good year, with fees up 21% due to demand for Western luxury cars in Asia. Marine activity is good, with fees up 7%. New frigate and destroyer programmes have taken off to replace the slow-down in the aircraft carrier and Oman programmes. The leisure market is also showing signs of increase. Activity in the Science and General Engineering sectors has been flat year on year.
Professional Services also fared comparatively well with a 28% increase in contract fees, partly driven by the acquisition of Xchanging. Permanent fees were down 6% due to the discontinuation of Executive Search and Financial Services operations. Barclay Meade fees were fairly flat over the period but market share grew as the group placed a greater emphasis on the professional marketplace in the South East. At Alderwood, fees increased slightly as the Welfare to Work providers focus on the provision of skills creating larger companies with a higher volume of permanent vacancies. Fees at Connectus had risen nicely as various projects create a demand for both permanent and contract staff and there continued to be a skills shortage for software developers, analysts and hardware designers.
During the period, the group announced contract extensions for BAE, taking the contract to the end of 2015 on an unchanged margin. A one year extension for the Babcock Marine contract takes that up to March 2014 and likewise, a contract extension with TFL takes that to March 2014 also. A new contract was announced with UK Power Networks that covers recruitment for two years.
Going forward, the group have stated that the engineering contract market remains strong with clients continuing to see good global demand for their services and products and long term infrastructure projects give good visibility. It is predicted that full year results will be in line with expectations. Overall this is a good update, the group is more profitable and there is an impressive cash flow. The cash flow has gone into paying down the debt, which is a good move in my view. The small hike in dividends and large hike in share price means that the yield is still an impressive 4.7% for the year. I have purchased some more and I still see these shares as good value.
On 8th August, the group released a trading update for the full year. Trading in the last few months was strong and underlying profit for the year is now expected to be slightly ahead of previous expectations. Underlying NFI for the year was up 9% on last year and demand for contract staff within Engineering and Connectus remained strong due to global demand for products and services that their clients offer and continued investment in UK infrastructure. Permanent fees increased by 4% and Engineering delivered a 6% increase. The time to hire period was elongated, however, due to low candidate confidence. Net debt was reduced by £4.2M but remained fairly high. Overall a fairly positive update but the share price in recent weeks has more than kept up with the good news.
On 6th September, Matchtech announced that it has acquired Provanis (Application Services Ltd), a niche technology recruitment business for a total of £4M, paid by the lending facility. Provanis achieved an operating profit of £1M last year and is expected to be cash generative. The acquisition will complement Matchtech’s technology business and will broaden their capability in the global ERP recruitment market as 55% of net fee income is generated outside the UK.
On 20th September the group announced the arrival of Brian Wilkinson as chairman. He joins from Ransted, the second largest recruitment firm in the world and seems to be quite a decent appointment. On the same day, Matchtech announced that it was announcing the placing of just over 1M new shares, representing 4.3% of the share capital. The placing price was 405p, compared to the price at writing which was 430p. The placing will raise £4.1M which is being used to pay back debt incurred with the recent acquisition mentioned above. I must say that this has come as somewhat of a surprise as I thought the group had sufficient existing facilities to handle the acquisition and I am slightly concerned. Perhaps management thought the share price was a little toppy and wanted to capitalise on that?