Servoca PLC (LON:SVCA) have today reported that for the six months ended 31 March 2017 they have delivered another period of significant improvement in the performance of the Group.
All areas of the Group achieved revenue growth and this helped ensure the Recruitment and Outsourcing operations both delivered improved profitability.
The improvement to profitability in our Recruitment operation was led by our Health and Social Care business (Private Sector focus) and our Criminal Justice division. Our Outsourcing operations delivered a substantial improvement in profits benefitting from both sales growth and action taken at the end of the prior year to reduce overheads.
It is particularly pleasing to see different parts of the Group coming to the fore and the first half performance reflects this. There have been some well publicised challenges in some of our markets but our diversified business mix has delivered a resilient performance. The business also continues to benefit from the experience and strength of its management team, which is proving important in attracting talent into the Group.
Highlights
· Revenue £40.93m (2016: £34.44m), an increase of 18.8%
· Gross profit £9.74m (2016: £8.95m), an increase of 8.8%
· EBITDA* £1.95m (2016: £1.52m), an increase of 28.3%
· Profit before taxation* up 28.6% to £1.71m (2016: £1.33m)
· Increased revenues in all areas of Group markets
· Basic EPS of 1.10p* (2016: 0.85p), an increase of 29.4%
* before amortisation (£0.03m), share based payments (£0.03m) and contingent consideration payments (£0.4m)
Andy Church, CEO, commented:- “As indicated in our recent trading update, we are pleased to report that results for the first half are significantly ahead of the same period last year. The Group continues to achieve substantial growth and our performance is benefitting from our diversified business mix. The Group operates in six distinct markets and revenues in each one were ahead of the corresponding period last year. Performance in the first half leaves the Group well placed to deliver against full-year expectations.”
Financial review
During the six months to 31 March 2017 revenues were £40.93m (2016: £34.44m), an increase of 18.8%, which resulted in a gross profit of £9.74m (2016: £8.95m), an increase of 8.8%.
Administrative expenses (before amortisation, share based payments and contingent consideration) for the current period were £7.98m (2016: £7.58m), an increase of 5.3%.
EBITDA (before amortisation, share based payments and contingent consideration) increased to £1.95m (2016: £1.52m), an increase of 28.3%.
The profit before tax (before amortisation (£0.03m), share based payments (£0.03m) and contingent consideration payments (£0.4m)) increased to £1.71m (2016: £1.33m), an increase of 28.6%.
Basic earnings per share (before amortisation, share based payments and contingent consideration) for the period to 31 March 2017 were 1.10p (2016: 0.85p), an increase of 29.4%.
Net debt at 31 March 2017 was £2.95m (March 2016: £1.30m, September 2016: £2.40m) reflecting normal working capital increases from a higher level of turnover during the six month period.
The Company has and will continue its share buy-back program and at the date of this report, holds 1,920,138 shares in treasury.
Operational highlights
Strategy and delivery
The focus during the period has remained the development of the Group’s capabilities in those areas that the Board believes afford good growth opportunities.
Outsourcing
Our Outsourcing activities are primarily based in two areas; Domiciliary Care and Security.
Our Security business has delivered a substantially improved performance in the first half of this year compared to the same period last year. Revenue growth in our Manned Guarding and Electronic security offerings has been complimented by action to reduce overheads at the end of the prior year.
As referenced in our statement for the year ending 30 September 2016, both the Manned Guarding and Electronics divisions secured substantial additional work towards the end of the last financial year which has driven the growth during the first half of this year.
The growth in our Electronics division is largely attributable to the expanded deployment by an existing client of a unique software solution for loss prevention in the retail industry. The client is a major UK grocery retailer that has deployed the product for several years in a sizeable number of their stores. The results and return on investment during this period have helped secure an order for a considerable expansion into what is expected to be the majority of their estate over the next few years.
In our statement for the year-ended 30 September 2016 we reported that our Domiciliary Care business had endured a challenging year and that second half revenues had mirrored the first half and lagged behind prior year. We are pleased to report that during the first half of the current financial year this trend has been reversed and we have seen healthy sales and profitability growth over the corresponding period last year.
As mentioned in our statement for the previous financial year, we have managed costs tightly and retained a focus on only those supply arrangements that we believed were sustainable. This approach has given us a solid foundation for profitable growth.
During the first half of the current year we have seen recognition that the sector must receive additional funding as we enter the new tax year. Over recent years, providers have faced rising costs (predominantly associated with increases to the National Living Wage and other statutory costs) and static or declining charge rates. Increased flexibility for local authorities to generate additional funding through the adult social care precept is one step towards generating additional monies to meet the increased costs of provision. Our experience is that the majority of our commissioning authorities are now increasing fee rates in line with increases to statutory costs for the new budget year.
During the first half of the year the business tendered for several meaningful opportunities for new contracts and we have received positive news that two of these contracts have been secured and will commence in the second half of the year.
Recruitment
Our recruitment businesses supply into the Education, Healthcare and Criminal Justice markets.
Our Healthcare recruitment division has enjoyed another period of significant growth over prior year.
We operate in two distinct markets in this area through separate subsidiary brands. Servoca Nursing and Care supplies temporary resource to the Health and Social Care market, which is almost exclusively within the Private Sector, whilst Firstpoint supplies Nursing and Care professionals into the NHS. This distinction is important as whilst revenues have increased in both areas, profitability growth is all from our Health and Social Care supply into the Private Sector.
As previously reported, the NHS supply has faced significant challenges, largely as a result of previously imposed agency price caps, the last of which came into force in April 2016. This has placed downward pressure on margins and therefore necessitates increased volumes of supply in an efficient manner if we are to protect profitability. We have restructured support operations in response to this requirement, including the establishment of a low cost offshore capability.
We are therefore pleased to report that during the first half of the year, we continued to take increased market share. Revenues were up 15% and the volume of weekly hours supplied was also up by just under 10%. The increase in sales volumes has maintained profitability in line with the prior year period despite a reduction in the gross margin achieved.
Our Servoca Nursing and Care business has enjoyed a great six months accounting for 62% of total operating profit generated by our healthcare recruitment activities. The weekly gross profit run rate has increased by over 16% during the first half of the year and the volume of weekly hours supplied is up by 17% over the period.
We reported in our full year results that our Education division experienced a tougher second half to the last financial year and that over the year, whilst revenues were up, gross profit was marginally down. The performance in the first half of the current year mirrors that of the last full year with revenues up but gross profit marginally down when compared to the first six months of last year.
However, demand continues to outstrip supply despite the budget pressures faced by schools and there remains an acute shortage of qualified teachers. We are making positive progress in our overseas candidate generation capabilities in response to this and have continued to invest in developing our branch network where we identify appropriate opportunity.
Our Criminal Justice business has continued its positive momentum from the previous financial year and enjoyed a very strong start to the year.
As reported in our statement for the year ended 30 September 2016 the business secured a significant contract for the supply of temporary probation staff in the final quarter of last year. Delivery into this contract has continued to build during the first half of the year and has helped contribute towards a significant improvement in revenues and profit over the same period last year.
Outlook
Servoca Plc enters the second half with positive momentum on the back of a strong first half performance. The balanced and diversified nature of the Group continues to provide healthy growth opportunities.
Recent new contract wins, particularly in our Outsourcing businesses, bode well for prospects in the second half of the year.
The Group therefore remains confident in delivering its expectations for the full year.
