IGNITE LIMITED — Annual Report 2013

Aug 20, 2013

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ABN 43 002 724 334

Level 9, 1 York Street Sydney NSW 2000

t. 02 9250 8100

e. feedback@clarius.com.au

www.clarius.com.au

ASX ANNOUNCEMENT

Wednesday 21 August 2013

Clarius Group Ltd Results Announcement for the Year End 30 June 2013

Clarius Group Ltd today released results for year ended 30 June 2013. In line with the guidance released on 5[th] June 2013, an operating loss after tax of $0.9m was reported before goodwill impairment. A non cash goodwill impairment of $40.9m was made against the Alliance and Candle businesses leading to a statutory loss of $42.2m. This impairment recognises the impact of the volatility of the current market on the trading of acquisitions made during peaks in the economic cycle, together with the impact of the restructuring of a number of the recruitment brands that has been undertaken to date. De‐recognition of tax losses in NZ of $0.4m were also made.

Reconciliation of Statutory Result

	FY2013
	$AUD Million
Loss after tax	(42.2)
Add: Non cash impairment	40.9
Add: De‐recognition of tax losses	0.4
Adjusted net loss after tax	(0.9)

Throughout the year, restructuring costs of $0.72m were incurred that will provide annualised savings of $6.0m before tax. A significant portion of these savings have been realised in H2 FY2013 and will flow into FY2014. The majority of these savings are operational and management level salaries that will not impact the sales or delivery capability of the business. Included in the reduction in salary cost of $5.3m from FY2012 to FY2013 which has been reported, an investment of $3m in salaries was made in the Asian region to provide the growth in the market in China and Singapore.

Major Points:

• Operating loss after tax of $0.9m excluding non‐cash impairment in line with guidance

• Revenue decrease 17.6% to $225m

• EBITDA before non‐cash impairment & de‐recognition of tax losses, and restructuring $1.0m compared to $4.4m in FY 2012

• Gross Margin down from 16.9% to 16.6% due to margin reduction from extension of agreement with major accounts

• Operating expenses down $4.8m (11.3%) excluding non‐cash goodwill impairment

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• Operating cash flow $4.4m, an improvement of $6.4m on prior year

• No net debt

Trading conditions remained challenging across the Australian and New Zealand businesses with both economic and political instability leading to increased cautiousness in hiring activity. Both reduced demand for permanent and contracting services and pressure on margins from major accounts have impacted the full year result for FY 2013. With significant reduction in contractor numbers in Queensland at the start of the financial year due to the change in Government, a more pronounced impact from a longer than normal seasonal break over Christmas and overall reduced demand in the IT sector for much of the year, 2013 presented some of the most difficult trading conditions that we have seen.

In line with the strategy to increase our presence in growth markets, the investment in China has provided a strong foundation for growth into 2014. We have recorded an increase of 335% in permanent revenue in the region and China is now a significant contributor to the overall permanent margin for the group. The business in China was profitable in H2 FY2013 and close to break even for the full FY2013. We anticipate further growth and profitability in FY2014 off the back of productivity increases from investments already made.

Clarius continued to win new business throughout FY2013 which has come as the result of an increased focus on building a strong sales culture. A significant new account was signed in June that will impact the full year of FY2014. Additionally, all major account renegotiations were successful with all high volume accounts up for review being re‐signed. This did come at the cost of some margin reduction, but ensures the ongoing stability of the volume contractor revenues of the business. Additionally, the lower cost model developed to accommodate this will ensure the profitability of the accounts.

The implementation of new payroll and invoicing systems is on track for full implementation to be finalised this financial year. This implementation has already delivered salary and headcount reductions and increased efficiencies and further savings will be made as the project progresses to finalisation. Additional unrealised savings will be made as the contractor market improves as the system will provide far greater scalability.

Operating cash flow for the year was positive at $4.4m compared to an outflow of $2.0m in FY2012. The improvement comes as a result of both stronger focus on working capital management and diminished pressure on working capital from reduced contractor numbers across the business.

Although conditions remain challenging, we anticipate that the upcoming election will provide more certainty that should result in more positive hiring sentiment across some sectors. This combined with the cost savings implemented and still to be realised, new account contributions and further growth in Asia gives us some confidence that there are opportunities for growth in 2014 assuming trading conditions do not worsen.

Given the current economic outlook, the Board has resolved not to pay a final dividend.

SHAREHOLDER AND ANALYST ENQUIRIES

CONTACT:

Clarius Group Kym Quick Anne Bastock Managing Director Chief Financial Officer P (02) 9250 8100 P (02) 9250 8100

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ASX Preliminary Final Report Period ended 30 June 2013

Lodged with the ASX under Listing Rule 4.3A 21 August 2013

Summary of Audited Financial Results

• Revenue down 17.6% to $225m.

• Gross margin down from 16.9% to 16.6% due to the decline in contracting margin.

• Operating expenses down $4.8m (11.3%) excluding non-cash goodwill impairment and restructuring costs.

• Operating loss after tax of $0.9m excluding non-cash goodwill impairment.

• Non cash goodwill impairment of $40.9m.

• Reported net loss after tax of $42.2m.

• Operating cash flow $4.4m, an improvement of $6.4m on prior year.

• No net debt.

Reconciliation of statutory loss

Reconciliation of statutory loss
	FY2013
Loss after tax as per consolidated
statement of profit or loss and other	(42.2)
comprehensive income
Add : Non cash impairment	40.9
Add : De-recognition of tax losses	0.4
Adjusted net loss after tax	(0.9)

AUD million

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Contents

Commentary on results for the year ended 30 June 2013 compared to the year ended 30 June 2012

Results for announcement to the market

Audited financial report (attachment)

Financial performance

The 2013 financial year continued to present challenges to the recruitment market as evidenced by a decrease in revenue of $48m (17.6%) to $225m (FY2012: $273m) with a reduction in the group’s overall gross margin to 16.6% (FY2012:16.9%).

The business faced significant challenges not only from difficult market conditions throughout Australia and New Zealand but also from margin pressure.

Competition in the market has led to a number of agencies reducing prices and margin to sustain market share. Our response to these challenges has been to focus on cross-selling opportunities between our brands and further developing new lines of business. We continue to negotiate competitive pricing models with our customers but more importantly, we have focused on delivering an excellent quality of service. Utilising different delivery structures has enabled us to maintain acceptable profit levels. Although this has led to a slight decline in the overall group gross profit margin, we have achieved a reasonable performance given continuing market pressures.

Over the year, job advertisements continued to fall and the demand for permanent recruitment remained weak. Our mix of temporary and permanent business changed during the year, with permanent revenue now contributing 30.6% (FY2012: 25.0%) of group gross profit.

Our Asian recruitment business has performed well, particularly the operations in Greater China. Our operation in Hong Kong was closed in October 2012 in response to difficult market conditions. Singapore’s permanent and contract business continues to perform in line with management expectations.

Investment has continued in the payroll and invoicing system integration project which will allow for greater scalability and efficiencies. This project is proceeding well and is on track to be completed by the end of the year.

Net loss after tax for the year is $0.9 million (excluding non-cash goodwill impairment and de-recognition of tax losses). Reported net loss after tax for the year was $42.2 million.

Whilst we have reduced staff numbers during the year, there is still some capacity to deliver further revenue growth in the short term. We have increased headcount in our growth markets of China and made reductions in those areas where market conditions are weaker.

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The economy in general has remained challenging, but the Directors are confident in the robustness and sustainability of the Group to endure turbulent economic cycles. Each line of business has strengthened its sales capability and streamlined costs to ensure maximum productivity and capacity for growth with no major increases to the cost base.

The operating cash flow for the year was positive at $4.4 million compared to an outflow of $2.0 million last year. The improvement in cash flow reflects an intense focus on working capital management and the flow-on effect of lower revenues.

Following an extensive review of the carrying value of intangible assets at balance date, a goodwill impairment of $40.9 million has been recorded at 30 June 2013. This impairment is attributable to Candle and Alliance and recognises the impact of the volatility of the current market on the trading of acquisitions made during peaks in the economic cycle together with the impact of restructuring of a number of the recruitment brands that has been undertaken over several years. The reported net profit after tax after the goodwill impairment of $40.9 million was a loss of $42.2 million. In addition, due to continued uncertainty as to the timing of market recovery, income tax losses of $0.4m incurred in recent years in New Zealand and recognised as a deferred tax asset, have been derecognised this year.

Overall, the Group is in a sound financial position with no gearing and significant un-drawn finance facilities. The Directors believe the Group is well positioned to continue to manage through the current economic cycle whilst its cost base and resourcing levels continue to be optimised so as to ensure strong profit conversion on any uptick in markets.

Dividend

Given the current economic outlook, the Board has resolved not to pay a final dividend. There was no interim dividend declared or paid during FY2013.

Results for announcement to the market

This announcement is to be read in conjunction with the attached audited financial report.

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Year ended 30 June 2013

Previous corresponding period is year ended 30 June 2012

				$’000
Revenue from ordinary activities	Down	17.6%	To	225,278
Loss from ordinary activities after tax attributable to members	Down*	347%	To	(42,214)
Loss for the period attributable to members	Down*	347%	To	(42,214)
Earnings per security		2013		2012
Basic EPS (loss) (cents per share)		(47.15)		(10.63)
Diluted EPS (loss) (cents per share)		(46.62)		(10.31)
Operating cash flow ($’000)		4,394		(2,041)
Net tangible assets per security (cents per share)		38.50		40.70

*Represents a greater loss than the prior corresponding period.

For further information

Kym Quick Managing Director and Chief Executive Officer 02 9250 8100

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About Clarius Group

12 Cities 38 Offices 290 Employees

Clarius Group (ASX: CND) is one of Asia Pacific’s leading professional employment services providers, specialising in permanent, contract and temporary placements across all levels of seniority.

The Group recruits in the accounting, banking, corporate services, engineering, finance, information technology, information management, sales and marketing disciplines as well as provide aligned services including contractor management, outsourced payroll and managed IT services.

Established over twenty-nine years ago and listed on the Australian Securities Exchange in 1997, Clarius Group maintains a reputation for high-quality delivery and remains one of the largest and longest standing recruitment suppliers in the region.

Clarius Group operates through a number of quality specialist brands:

Recruitment

• Alliance Recruitment – Corporate Services

• Candle – Information Communications Technology

• Lloyd Morgan – Accounting, Banking and Finance

• SouthTech – Engineering and Technical

• The One Umbrella – Information Management

Aligned Services

• Ignite – Contractor Management and Outsourced Payroll

• Jav IT – Managed IT Services

Clarius Group employs over 290 staff through a network of offices located in Adelaide, Brisbane, Canberra, Melbourne, Perth and Sydney in Australia; Auckland and Wellington in New Zealand; Singapore; and Beijing, Shanghai and Suzhou in China.

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