Matchtech has now released their half year results for the year ending 2014.
Revenues for the group were up across the board. Engineering revenue was up £11.4M, Professional services revenue increased by £6.6M and the group received some “other” revenue that did not occur last year, relating to the results from the acquired group Provanis, and going forward these revenues will be included in Professional Services. Costs of sales were also up, however, and gross profit was £3.7M higher than in the first half of last year. Admin expenses were up slightly and operating profit was better by the tune of £2M at £6.2M. There was no finance income, and finance costs increased by £123K due to a loss of £200K on the revaluation of foreign assets, before a £277K increase in tax meant that overall profit for the half year was some £1.5M higher at £4.4M, which is a pretty decent performance.
Overall assets fell by £2.4M when compared to the end point of last year. This fall was almost entirely driven by a £6.8M decrease in trade receivables, somewhat counteracted by smaller increases in goodwill, acquired intangibles and other receivables. It can be seen that liabilities also fell. The large decreases were a £6.5M fall in payables and a £2.1M reduction in the bank loan. The resulting net asset value was £38.4M, a £6.1M improvement from the end point of last year. A lot of these increases were due to the intangible assets, however, and net tangible assets increased more modestly, up £2.9M to £34.6M.
Before movements in working capital, operating cash flows increased by £2.1M. A decrease in receivables was broadly mitigated by a similar decrease in payables, however it should be noted that last year benefited by more opportune movements in working capital. A higher tax payment also contributed to a net cash from operations some £4M lower than the first half of last year at £5.3M. After operations, the issue of more share capital paid for the acquisition before an increased dividend payment of £3.2M gave a cash flow for the year of £2M, £4.7M lower than the first half of 2013. This seems disappointing on the surface but is broadly due to favourable working capital movements last year.
Engineering recruitment still represents the most important sector to the group with profits of £4.7M during the half year. The total division NFI fees of £13.3M were up by 16% with contract NFI up 16% to £11M and permanent fees up 15% to £2.3M. Infrastructure NFI was up 37% to £3.7M as substantially increased demand for contractors was seen in highways, rail and utilities. These fees were boosted by the managed service contract with UK Power Networks. Energy NFI increased by 9% to £2.4M as record investment levels in oil and gas projects increased demand for onshore engineering rolls that the group supplies. Automotive NFI increased by 12% to £1.9M as the prestige automotive market that the group supplies benefited from increased demand and exports.
Marine NFI was up a substantial 20% to £1.8M. This increase was driven by long term work on the mysteriously titled “Type 26 project” and the Successor Submarine programme requiring multiple engineers over various sites. Also in the marine sector commercial and leisure both showed signs of growth and the shipping sector saw a rise in demand for shore-based personnel. Aerospace NFI was down by 6% to £1.6M but growth is expected as OEMs move programmes onto a new production stage. Science NFI was flat at £500K with higher average permanent fees seen due to the placement of higher level candidates. Internationally the group placed candidates in 33 different countries from their UK office but the German business continued to be challenging and once again underperformed during the period.
Professional Services contributed £1.1M of profit and like engineering, showed increased profits when compared to the same period of last year. NFI was up 26% to £8.8M but this increase included £800K from the Provanis acquisition. Underlying NFI was up 14% with contract NFI up 11% to £4.1M and permanent fees increasing by 18% to £3.9M. Barclay Meade NFI increased by 5% to £2.2M with increased demand seen in London and candidate interviews were at an all-time high. Alderwood NFI soared by 80% to £900K as the business won exclusive accounts with major vocational training providers and the group have also won higher margin work with contingency clients. Connectus NFI grew by 11% to £4.9M as demand in IT staff was driven by cloud services, cyber security, big data, digital media and next generation ecommerce. Provanis provided NFI of £800K in the first five months after the acquisition and 60% of these fees came from international customers.
During the period there was a continued strong demand for contractors across most of the disciplines with the number of contractors on assignment at the same level as at the end point of last year despite the reduction of about 300 contractors at the group’s largest client and underlying contract margins increased to 7.2%. During the period the group had one client that generated revenues of £18.9M which is a fairly substantial chunk. The group does seem to be successfully diversifying revenue streams, however, as this client brought in £26.9M of revenue during the same period of 2013.
During the half year the group acquired Application Services Ltd, trading as Provanis for a total cash consideration of £4.3M. Provanis is a technology recruitment business with a niche expertise within the Oracle applications marketplace which will broaden the group’s capability within this market. The group paid goodwill totalling £1.4M for the acquisition and received a £415K operating profit for the period that it owned Provanis. In order to pay for this acquisition the group issued about 1M new shares, raising £4.1M.
Going forward, the group has increased sales force headcount and investment in support services as the board considers that the market is now firmly in recovery mode. The skills shortage in Engineering will continue to increase demand for contractors and this, along with a recovering permanent market should further improve margins. The integration of the acquisition is also progressing well and trading is good at the start of the next quarter which has prompted the board to suggest that results for the full year are likely to be slightly ahead of previous expectations.
Net debt for the half year stood at £8.6M, this was an improvement from the £10.6M net debt at the end point of last year but slightly worse than the £8M recorded this time last year. The board declared an interim dividend of 5.41p, a 5% increase from the interim dividend last year. When added to the final dividend at the end of last year, the group yields 2.9% at the current share price, which is not too shabby. The prospects look pretty good for Matchtech for the moment and revenues are up across all sectors, although it sounds like the German office is still struggling. The acquisition seems a sensible one to me and I am more than happy to be holding these shares.
On 16th June it was announced that Andy White has resigned as non-executive director of the group. Andy has been with the group since 1990 so it is quite big news and no reason was given for his resignation.
On the 7th August, the group released a pre-close statement for the trading during the year. Business has continued to be strong and results are now expected to be slightly ahead of current expectations. Specifically, the group enjoyed an 18% increase in Net Fee Income; an increase in margins and contractor wage inflation; heightened placement activity across the UK as the economy recovers; improved cost control and a strong cash conversion with net debt improving to £3M. Due to the expected further recovery in the UK economy the group is investing in their consultant headcount which will probably increase costs going forward. All in all, a good update and I’m tempted to add to my position.