PeopleIN released their AGM address today. CEO, Ross Thompson focused mostly on what’s been currently happening in Q1FY24 and what’s expected going forward (Q4 and beyond). I’ve put together a summary and some key points below:

My Summary

Conditions have deteriorated during Q1FY24 with EBITDA down 33% pcp, from $15M to $10M. Despite higher revenues the mix shifted to lower margin sectors. Management expects higher margin demand to improve in Q4 and FY25. There was no FY24 guidance provided, but reading between the lines we could expect a significant decline in EBITDA compared to a record FY23. If EBITDA stabilises for the rest of FY24 at current levels we could expect EBITDA of $40M, compared to $61.1M for FY23 and $47.2M in FY22. This hasn’t been reflected in analyst consensus to date, some analysts expecting continued growth. However, I think the market has been more realistic and has already factored in lower earnings for FY24.

Management will update shareholders quarterly going forward with the first newsletter released today. Today’s newsletter was basically a repeat of the CEO’s AGM address.

My Key Points

• FY23 - record performance delivering over 8% organic growth
• FY24 - more challenging
• Q124 - significant decline in business confidence across multiple sectors and declining economic conditions, due in part to higher interest rates
• many private clients reducing their demand, especially high-margin roles and permanent recruitment, or delaying investment decisions, including in health.
• Q124 - Revenue higher than Q123 ($281M v. $272M)
• Q124 - EBITDA was $10M down from $15 for Q123 due to shift towards lower margin work
• Cash collection continues to be strong as conversion rate was above 90%
• expect higher margin demand to improve in Q4 and into FY25.
• Expect return to a strong organic growth footing when conditions improve
• Industrial Relations Reform Bill is going through a senate inquiry that will report back in February 2024.
• if passed, they believe this will create an opportunity for PeopleIN as a large reputable labour hire business
• approved to start recruiting PALM workers into the aged care sector and currently seeking approval for the NDIS and early learning sectors
• expanding our activity in the Defence sector
• will provide more regular updates to shareholders with a quarterly e-newsletter. The first edition will be published this week

CEO Address – Ross Thompson

PeopleIN delivered another record performance for FY23, despite varied challenges, including a downturn in the technology sector and ongoing candidate supply challenges, especially in the health sector. Our success was due to the commitment of our team to consistently deliver, as well as the diversity of our reach into high-demand employment sectors.

As flagged in August, FY24 is a more challenging year given the significant decline in business confidence across multiple sectors and declining economic conditions, due in part to higher interest rates. As reported by analysts, the staffing industry is being impacted by this decline and several of our peers have reported substantial reductions in their earnings for FY23 and then further reductions in Q1 FY24. At PeopleIN we delivered over 8% organic growth in FY23, well above most of our competitors, but we’re not immune to deteriorating conditions and in FY24 our earnings will be impacted. We’ve already experienced this in Q1 with many of our private clients reducing their demand, especially high-margin roles and permanent recruitment, or delaying investment decisions, including in health. As a result, our EBITDA for Q1 was $10M which is down from the strong and robust economic conditions in Q1 FY23 where we earned $15M EBITDA. Our Revenue for Q1 was $281M which is an increase on Q1 last year when we generated $272M, highlighting a mix shift towards lower margin work. We’re driving efficiencies where possible to realign our cost base in line with this margin shift. Cash collection continues to be strong as our conversion rate was above 90% in Q1. We expect the wider downturn to be relatively short-lived, especially in health, and we expect higher margin demand to improve in Q4 and into FY25. The quality of our team, our sector diversity, and our strong cash position will enable us to trade through this challenging economic climate and ensure that, when conditions improve, we can return to a strong organic growth footing. We have an experienced and commercially focused leadership team that is focused on revenue opportunities, sales, cash collection, and ensuring the business is running as efficiently as possible.

As most of you will be aware, the Federal Government has proposed an Industrial Relations Reform Bill that is currently going through a senate inquiry that will report back in February 2024. This is a complex bill that is creating unnecessary confusion in the short term. However, if passed, we believe this will create an opportunity for PeopleIN as a large reputable labour hire business, given that we have the established infrastructure and capability to solve this complexity for our clients, especially those that have limited internal human resources/industrial relations resources.

We experienced this in relation to the Pacific Australia Labour Mobility Scheme with many clients opting to use PeopleIN to source talent, rather than do it themselves, given the high level of complexity and requirements within the scheme. Our Pacific workers are permanent employees, and we continue to grow our participation in PALM, which is good business for PeopleIN, it’s also good for the workers and their home nations given the significant social economic contribution that the scheme makes to Pacific nations. More than $60M in wages was sent home by our PALM workers in FY23. I’m also pleased to announce that we were recently approved to start recruiting PALM workers into the aged care sector. We’re working with the Government on obtaining approval for the NDIS and early learning sectors as well. This is a great example of PeopleIN’s medium to long-term prospects and is one of the factors giving us confidence our organic growth will accelerate when market conditions improve.

Another exciting growth opportunity for the business is expanding our activity in the Defence sector given our sovereignty status and we have a large pool of candidates to deploy across Australia including into regional areas. We believe we’ll be well placed to grow substantially in this sector, especially as the Federal Government and US Government increase their spending on infrastructure and capability acquisition in Australia.

In order to provide more regular updates to our shareholders, including on these growth opportunities, we’re launching our quarterly e-newsletter. The first edition will be published this week, enjoy.

As previously announced, Adam Leake commenced on the 13th of November as our new CFO. Adam succeeds outgoing CFO Megan Just. We’d like to express our gratitude to Megan for her invaluable contribution and dedicated service to PeopleIN over the last seven years. Megan will continue to be engaged by PeopleIN on a consultancy basis. We’re excited to have Adam join the PeopleIN team. His vast experience, combined with his innovative approach to financial leadership, aligns perfectly with our company's goals and values.

I’d like to thank our Chairman and Directors for their valuable leadership and support. To the Executive Leadership Team and all of our people, thank you for your hard work and commitment to our continued success.

We look forward to updating you on our performance and operations in February, upon the release of our H1 results.

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