Chief Financial Officer’s Report
In a year of tough trading conditions Matchtech has posted solid profits, and
generated enough cash to maintain its dividend and reduce debt.
Consolidated Income Statement
Matchtech’s resilient business model has enabled us to adapt and change quickly with the
economic slowdown, managing our cost base efficiently so as to minimise the impact of
lower Net Fee Income (‘NFI’).
Headcount and costs have been reduced to levels commensurate with the prevailing
market conditions and remain under regular review.
Revenue for the year increased to £269.6m, up 4% (2008: £258.8m) with H1 up 18% and
H2 down 7%.
We experienced NFI growth in H1 of 8%, but the effects of the recession filtered through in
H2 with NFI down by 23%.
NFI fell to £30.3m, down 9% (2008: £33.2m), mainly due to the fall in the volume of
permanent fees but also reflecting the pressure from margin reductions demanded by
clients.
Gross profit margin fell to 11.2% (2008: 12.8%). Gross profit margin on contract income
fell from 2008: 9.0% to 2009 8.4%. In H1 gross profit margin on contract income was 8.6%
and in H2 8.2%.
There was a significant fall in demand in the permanent marketplace in both Q3 and in Q4;
further information is provided in the Chairman’s and Chief Executive’s reviews.
This has caused a change in our business mix with 73% (2008: 67%) of NFI derived from
recurring contract income and 27% (2008: 33%) from permanent placements. We continue
to be a contract led business but still maintain a healthy balance between contract and
permanent business.
Despite the slowdown, the management of our cost base has allowed us to maintain high
net fee income conversion to operating profit. Our low cost single site operating model has
allowed us to flexibly manage our overheads.
A reduction in staff numbers, the ability to transfer good staff within the single site to busier
sectors and the high variable proportion of staff remuneration has mitigated some of the
loss of net fee income. The one-time costs of the staff reductions were less than £0.1m
and are not considered exceptional. The savings in the year were c£0.4m with full year
expected savings in 2010 of c£1.7m.
In July 2009 the Board took the difficult decision, based upon the current economic
conditions and the staff reductions made, not to award annual pay increases effective from 1 August 2009, apart from promotions.
Advertising and marketing costs have fallen as the number of available candidates has increased. Costs in H2 of £0.4m were one third lower than
2008 H2, with expected full year savings in 2010 of c£0.4m.
There was also a write back of previous years’ IFRS2 share based payment charges of £0.6m in respect of the 2006 and 2007 Long Term
Incentive Plan (‘LTIP’) share option grants to staff, with the 2006 LTIP grant having lapsed due to both the EPS target and Total Shareholder
Return target not being met and the 2007 LTIP grant now considered highly unlikely to vest. The current year charge is a further £0.5m lower than
it would have been had the options remained likely to vest in full.
Operating profit fell by 15% to £11.6m (2008: £13.8m). H1 was up by 3% and H2 down by 30%. NFI conversion to operating profit remained very
respectable at 38.6% down from 41.6% in 2008.
Finance costs have fallen to £0.4m (2008: £1.1m) due to lower interest rates and, as we continue to generate cash, reduced net debt.
Profit before tax fell by 12.0 % to £11.3m (2008: £12.8m).
The effective tax rate for the year was 28% (2008: 29.0%) giving profit after tax of £8.0m, down 12% (2008: £9.1m).
Basic Earnings Per Share fell by 13% to 34.37p (2008: 39.34p) and Diluted Earnings Per Share by 10% to 34.35p (2008: 38.25p).
Dividends
The Board has proposed a final dividend for the year of 10.6 pence per share which, if approved by shareholders at the Annual General Meeting to
be held on Friday 20 November 2009, will be payable on 4 December 2009 to those shareholders registered on 6 November 2009. This makes a
total dividend for the year of 15.6 pence per share (2008: 15.6 pence) when added to the interim dividend of 5.0 pence per share, giving a dividend
cover of 2.2 times (2008: 2.5 times).
Between 1 December 2003 and 30 June 2009, the Company paid dividends amounting to £20.2m. Although the company had sufficient
distributable reserves to make each dividend payment, the relevant interim accounts reflecting these profits were not prepared and filed at the
appropriate time with the Registrar of Companies as required by the Companies Acts 1985 and 2006. Consequently payment of £15.7m of those
dividends, including the £3.626m paid in the year to 31 July 2009, did not comply with the technical requirements of the Companies Acts 1985 and
2006. Since 31 July 2009, as a matter of good governance and to reflect the adequacy of distributable reserves, interim accounts have been filed
with the Registrar of Companies, and the Company will put a resolution to the shareholders at the forthcoming AGM for their approval to take the
necessary steps to remedy the situation. These accounts have been drawn up on the basis that the infringement referred to above is regularised
by the actions to be proposed to shareholders at the forthcoming AGM. The proposals do not affect the results of the Group for the year to 31 July
2009, its net assets at 31 July 2009, nor its ability to pay future dividends.
Group Balance Sheet
Group net assets stood at £21.2m (2008: £17.1m).
The Company had 23.3m fully paid ordinary shares in issue at 31 July 2009 (2008: 23.2m).
Current debtor days at the year end, based upon the preceeding three months revenue, were 41.7 days (31 July 2008: 40.1 days; 31 January
2009: 41.8 days). At 31 July 2009 £0.2m (2008: £0.3m) of the £33.0m debtor book were greater than 60 days overdue, less than 0.5%.
Capital Expenditure
The Board took swift action in November, with the first signs of the recession affecting Matchtech, to significantly reduce capital expenditure. Since
September no new cars and only essential office and computer equipment have been purchased resulting in capital expenditure in the year of
£0.4m (£0.4m in H1 and £0.0m in H2) 50% down on 2008.
Net Debt
Net debt fell by £1.9m to £1.2m (2008: £3.1m).
The Group operates a Confidential Invoice Discounting facility with Barclays Bank plc,
committed until March 2011. The facility ceiling currently stands at the lower of £20m or
90% of qualifying invoiced debtors. The Group also has a £7.5m Revolving Credit facility
with Barclays Bank plc, committed until May 2011. At 31 July 2009 the balance on the
Confidential Invoice Discounting Facility was £1.5m and the borrowings from the Revolving
Credit facility were zero. The utilisation of all borrowing facilities as at 31 July 2009 was
less than 6%
Group Cashflow
The Group continues to be cash generative at an operating level. Operating cash
conversion in 2009, defined by net cash inflow from operating activities as a percentage of
operating profit, was 83% (2008: 108%).
Group financial risk management
The Board reviews and agrees policies for managing financial risks. The Group’s finance
function is responsible for managing investment and funding requirements including
banking and cash flow monitoring. It seeks to ensure that adequate liquidity exists at all
times in order to meet its cash requirements.
The Group’s strategy is to finance its operations through a mixture of cash generated from
operations and, where necessary, equity finance and borrowings by way of bank facilities
and confidential sales ledger financing.
The Group’s financial instruments comprise borrowings, cash and various items, such as
trade receivables and trade payables, that arise from its operations. The main purpose of
these financial instruments is to finance the Group’s operations. The Group does not trade
in financial instruments. The main risks arising from the Group’s financial instruments are
described below.
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Liquidity and interest rate risk
The Group had net debt of £1.2m at the year end, comprising £1.5m debt less £0.3m cash.
The Group’s exposure to market risk for changes in interest rates relates primarily to the
Group’s bank loan and sales financing facility debt obligations. Bank interest is charged on
a floating rate basis.
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Credit risk
The Group trades only with recognised, creditworthy third parties. Receivables balances
are monitored on an ongoing basis with the result that the Group’s exposure to bad debts
is not significant. There are no significant concentrations of credit risk within the Group,
with no single debtor accounting for more than 3% of total receivables balances at 31 July
2009.
Foreign currency risk
The Board considers that the Group does not have any material risks arising from the
effects of exchange rate fluctuations.
Tony Dyer FCMA
Chief Financial Officer