SERVOCA Plc Issues Interim Report
SERVOCA Plc Issues Interim Report
Specialist Outsourcing and Recruitment Solutions Provider Interim report
For the six months ended 31 March 11
Revenue 25.23m (March 10 25.64m)
Gross profit 6.85m (March 10 6.92m)
Profit before taxation (excluding share based payments and amortisation) 0.80m (March 10 0.95m)
Outsourcing revenues up 93% to 8.03m (March 10 4.16m)
Recruitment revenues down % to 17.m (March 10 21.49m)
Administrative expenses before share based payments and amortisation 5.99m (March 10 5.92m)
Net Debt 2.58m (March 10 1.90m, September 10 2.96m)
Basic EPS of 0.68p before share based payment and amortisation charges (March 10 0.80p)
For the six months ended 31 March 11 we are pleased to report that the Group has maintained revenues in line with the period ended 31 March 10.
Despite a substantially reduced run rate from a section of our public sector recruitment businesses as we entered the financial year 11, the Group has made substantial strides forward in its outsourcing activities. Revenues in this area were almost doubled and have offset the loss of revenues over the same period last year from some of the recruitment businesses.
Our statement for the year ended 30 September 10 confirmed the Group's commitment to developing its outsourcing activities in the face of what was anticipated to remain a challenging trading environment in our public sector recruitment businesses. This involved a significant investment in developing our Security business during the first six months of this year and a key focus on growing our Domiciliary Care activities. We have had notable success in growing our presence in the Domiciliary Care market on the back of our successful acquisition of the trade and assets of Phoenix Employment Services Ltd ("Phoenix"). We have also seen some promising progress in our Security division that should yield an improved level of profitability in the second half.
The focus on developing our outsourcing activities has proved important in mitigating the impact of what remains a challenging trading environment in our recruitment businesses. The progress made in our Domiciliary Care activities has been significant.
During the six months to 31 March 11, revenues were 25.23m (March 10: 25.64m) which resulted in a small reduction in gross profit from 6.92m in the six months to 31 March 10 to 6.85m in the current period.
The profit before tax, share based payments and amortisation was 0.80m (March 10: 0.95m).
Basic earnings per share for the period to 31 March 11 were 0.47p (March 10: 0.60p).
Net debt at 31 March 11 was 2.58m (March 10: 1.90m).
Strategy and delivery
During the period the Group has focused on the development of its outsourcing activities and this remains the focus going forward. The Group has been encouraged by the progress made in its Domiciliary Care activities and sees this as the key area for further development.
In the current period we have revised the structure of the segmental reporting to report on the two areas which our business is now split into - Outsourcing and Recruitment. This better reflects the spread of the business going forward and the way in which the Board now reviews the performance.
Our outsourcing activities are primarily based in two areas Domiciliary Care and Security.
Our Domiciliary Care service involves the delivery of care to users in their own homes. The nature of the care provided ranges in complexity with much of our supply focused on those users requiring continuing care for on-going medical conditions.
The acquisition of Phoenix towards the end of the previous financial year has been integrated successfully into our existing operations and trading from this business is considerably ahead of expectations. We have seen strong demand for our services and as a consequence we have already expanded the branch network beyond that which we anticipated at the start of the year. The return on investment from the new branches has been swift and they are already profitable.
The majority of our uplift in outsourcing revenues is from our Domiciliary Care activities and the Group is confident that this performance should continue into the second half.
New management was appointed in our Security business for the start of the current financial year with the aim of improving our service offering in this market and positioning the business for improved profitability.
Our service offering incorporates traditional manned guarding, event security, corporate investigations and a growing presence in the sale of specialist security products to the retail industry in particular.
The business has made more progress in some areas than others with manned guarding progress lagging behind the other divisions. However, revenues for the first half are up by 32% across the business and encouragingly we have successfully entered two new markets in event security and security products. We now supply security to several high profile events, including a number of prominent football clubs on an on-going basis. We have also secured a number of exclusive contracts to supply unique and in some cases market leading security products, largely to the retail industry. The value of these contracts may be substantial in the medium term.
The investment made in the first half will yield an improved level of profitability in the second half with the contracts secured in our products area starting after the period close.
Our recruitment businesses supply into the Healthcare, Education and Police markets.
In our Healthcare operations performance has been as expected with the profitability in our Doctors supply businesses well down on last year but with our Nursing revenues maintained and bottom line profitability improved.
As indicated in our statement for the year ended 30 September 10 the doctors businesses entered the financial year 11 with a substantially reduced run rate. This has led to a 30% reduction in revenues in the first half of this year compared to the last. We have seen some progress in developing our supply business that is positioned on the NHS framework but with a majority of business historically supplied off framework, this has come under particular pressure. Although this area was ahead of management expectations at the half year the contribution towards Group profits is almost half that of the prior year.
Nursing has also faced a challenging trading environment but the progress made in improving the run rate of the business last year has helped sustain revenues and margin this year. The more efficient generation of these revenues has also led to a 30% uplift in the contribution towards Group profits. We are supplying more nursing hours to the NHS than ever before but profitability was hampered by a reduced demand in the first half from the private sector where margins are substantially higher. Our specialist nursing supply has fared better than general nursing. Though trading conditions are also tough, we are securing greater market share to offset reduced opportunity.
Our Education recruitment is channelled through two brands and supplies temporary teaching staff for both short-term cover supply and longer term assignments. We also recruit for schools seeking to appoint candidates into permanent posts.
The reduced run rate that was established for the start of the new academic year has fed through to reduced revenues which are 22% lower than for the same period last year. We have seen greater resilience in our supply focussed on short-term periods of absence but this has been overshadowed by greater pressures in our long-term and permanent supply markets. Schools are indicating they are being required to operate under reduced budgets and funding and this, allied to increased levels of candidate availability, is placing downward pressure on demand.
Despite the challenging trading conditions we have seen some encouraging progress in the placement of teachers into International posts, with a majority of our current supply focused on the Middle East. The demand for British trained teachers in International or English speaking schools across the world has been strong and we are seeing positive growth in this area. We are also focussed on expanding the more resilient short-term supply operations which have actually seen a rise in profitability.
The Police recruitment business continues to face challenging trading conditions but has performed with some resilience. Although revenues are down 16%, gross profit is down only 8% as a consequence of improved margins from a better business mix.
First half profitability is ahead of management expectations though the Group believes the full year outturn is more likely to be broadly in line with market expectations.
As ever, the final month of the financial year is critical to the Group's performance with the key month of September pivotal to our Education recruitment profits. The pressures on permanent recruitment fees and longer-term temporary assignments mean we must exercise a note of caution given the inherent uncertainty present in this market. The contribution towards Group full year profits from this area during that period is significant and given current visibility we would expect some shortfall to management expectations. In the majority of our other recruitment activities performance is expected to keep pace with full year expectations.
The strong performance from our main domiciliary care activities is very encouraging and we expect this to continue in the second half. Such is the current growth and demand for our services in this area that we plan to open more branches this year and are in the process of implementing plans for the substantial expansion of this operation. In our other outsourcing market we will need to see more progress from the investment made in our Security division as we seek to secure an adequate return and position it for improved profitability in 12.
Whilst conditions in our recruitment markets remain challenging, the better than expected performance from our domiciliary care activities bodes well. The focus in the second half continues to be the development of our outsourcing capabilities to overcome the ongoing challenge posed by our recruitment markets.