SERVOCA Plc -Interim Report Hit But Still Profitable
SERVOCA Plc -Interim Report Hit But Still Profitable
For the six months ended 31 March 2012
· Revenue £22.25m (March 2011: £25.23m)
· Gross profit £6.17m (March 2011: £6.85m)
· Profit before taxation (excluding share based payments and amortisation) £0.10m (March 2011: £0.80m)
· Outsourcing revenues up 4.7% to £8.41m (March 2011: £8.03m)
· Recruitment revenues down 19.5% to £13.84m (March 2011: £17.20m)
· Administrative expenses before share based payments and amortisation £6.03m (March 2011:£5.99m)
· Net Debt £2.87m (March 2011: £2.58m, September 2011: £2.78m)
“The six months ended 31 March 2012 for the Group have been very challenging, with a reduction in revenues, gross profit and profit before taxation. Despite these challenges, we are glad to report that Servoca has remained profitable.
As indicated in our statement for the year ended 30 September 2011 our public sector recruitment businesses entered the current financial year with continuing challenges to their trading environment. We anticipated further reductions in revenues from both our Education and Doctors businesses in particular and these account for the majority of the revenue and gross profit reductions.
Revenues in our Outsourcing operation were up by almost 5% but revenues across the recruitment operations were down by just under 20%.
The continued investment in our Outsourcing capabilities was partly off-set by a reduced overhead in our recruitment operations, leaving administrative expenses broadly flat.
We have continued to focus on development of our Outsourcing operations and are pleased to report that our Security business has delivered a strong uplift in revenues and profitability in the first half.
During the six months to 31 March 2012, revenues were £22.25m (March 2011: £25.23m) which resulted in a reduction in gross profit from £6.85m in the six months to 31 March 2011 to £6.17m in the current period.
The profit before tax, share based payments and amortisation was £0.10m (March 2011: £0.80m).
Basic earnings per share for the period to 31 March 2012 were 0.00p (March 2011: 0.47p).
Net debt at 31 March 2012 was £2.87m (March 2011: £2.58m).
Strategy and delivery
During the period the focus remained the development of the Group's outsourcing capabilities. Progress continues to be made in improving our potential in this area. We also believe that demand will stabilize in the future in our recruitment operations. Our goal is to maintain a credible capability whilst managing overheads and profitability in the short to medium term.
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.
Building on the successful integration of an acquisition in this area just over 18 months ago we continue to develop our Domiciliary Care capabilities. During the period progress has been below expectations, but we remain of the view that this market holds long term growth potential.
In our statement for the financial year ended 30 September 2011 we signaled that this area was not immune from spending pressures where funding relied upon local authority budgets. During the first six months of the financial year, this issue has become evident in some NHS authorities. Some Primary Care Trusts (who currently commission providers on behalf of the NHS) have significantly reduced the amount of care they are willing to fund despite demand continuing to grow. In some cases we have seen a noticeable reduction in the amount of care the PCT's will fund for conditions that would previously have had many more hours of care provided. Charges and margins are also under pressure as PCT's report that they have reduced budgets to fund care in comparison to previous years. Revenues and gross margins are down as a result of this impact.
Despite these challenges, demand continues to grow in line with an ageing and growing population and we have opened three new branches in the period which we believe will prosper from this trend in the medium to longer term. We have also started to develop additional service offerings targeted at alternative funding sources.
The investment made during year ended 30 September 2011 in our Security business has begun to bear fruit with revenues and gross profits up almost 40% and 66% respectively. This has filtered through to much improved profitability.
The development of our service offerings has helped yield an encouraging uplift in revenues and profitability over the same period last year. The introduction of event security and the supply of specialist security products to the retail industry have aided this performance. We anticipated a significant impact from a number of exclusive contracts we had secured last year in the profitability for the first half of this year and are pleased to report that this was as expected.
We have also seen an improvement in revenues from our corporate investigations business which operates at attractive margins. New management appointed last year has had a positive impact on this area's ability to generate work. The mix of services has helped drive a substantial improvement in the gross margins the business now generates which have improved by almost 20%.
Our recruitment businesses supply into the Healthcare, Education and Police markets.
The Healthcare area has continued to see pressure on demand and spending, though our Nursing supply business has again proved more resilient than our Doctors business.
Revenues in our Nursing businesses were down just under 4% but margin pressure from the NHS against the on-going budget restraints pushed gross profits down by over 15%. To remain competitive in current market conditions our charges and margins have had to be adjusted which has helped stabilise turnover. In the supply of General Nurses and care workers to the NHS and Nursing Homes our revenues were actually up by 8%. Our specialist Nursing brand Firstpoint, which specialises in the supply of theatre Nurses, saw demand substantially reduced as a consequence of less surgery taking place in the NHS. The NHS has in many cases abandoned surgical waiting list targets reducing the amount and frequency of procedures taking place. We are well placed to meet any upturn in demand and tight management of overheads has kept the net contribution stable.
The continued deterioration in trading conditions for our Doctors supply businesses has been the most pronounced. As indicated in our statement for the year ended 30 September 2011, the run rates as we entered the current financial year were such that we anticipated further falls in revenue and gross profit. Revenues were down by 50% over the same period in 2011 and gross profits fell by almost the same amount. Demand has fallen substantially and supply is now largely channelled through the formal procurement channels of the NHS at reduced margins. As the majority of our supply was historically supplied off framework, the impact felt is significant. In the absence of any indications that conditions will improve in the UK this business is being restructured to reflect the reduced level of opportunity. We have also started work on supplying overseas territories which we will develop further in the second half.
We also flagged in our statement for the year ended 30 September 2011 that we expected further reductions in revenues from our Education operations and these were down 16% over the same period last year, however, the level of profitability was ahead of internal expectations and we are seeing some tentative signs of demand returning.
The Education businesses are now under unified management which have made a positive impact over the first half of the year. We continue to improve our internal capabilities and are developing a better business mix of short and long term temporary supply into schools. We have also seen encouraging progress in our new branch operations and have opened another branch as we expand our growth potential.
The Police business has enjoyed a period of consolidation and revenues and gross profit were ahead of the same period last year. Whilst trading conditions constrain growth expectations the business has made solid progress.
The Group continues to endure a challenging trading environment and it is now clear that the full year outturn will be below those achieved last year and current market expectations.
The nature of the trading environment and performance in the first six months means that we are taking action to reduce the overhead base accordingly. This is primarily focussed on our Healthcare businesses (both Domiciliary Care and Recruitment) where a restructuring is taking place. This action will result in a substantial reduction in overheads for the start of the next financial year.
We continue to invest in areas where we see growth potential and the performance of our Security business was very positive in the first half. Whilst the Domiciliary Care business has come under some pressure from historic funding sources we are actively targeting new areas. The long-term demand for these services continues to grow and it is well documented that the government needs to address the issue of funding adequate levels of care for an ageing and growing population. Part of this restructuring will see us strengthen management in this area.
We are also seeing some early signs of an improvement in our Education recruitment markets and under a unified management we are positively developing our internal capabilities. September is critical for both our full year profits and in establishing a platform for the next financial year.
The focus in the second half will be on delivering our restructuring plans to reduce the overhead base in those areas where the current market opportunity dictates that this is required. We will continue to develop our capability in those areas where we believe there is opportunity for growth and improved profitability.