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Penna Consulting is well positioned to profit from economic boom as well as bust after a transformational summer acquisition.

Recession, and the resulting upheaval in the jobs market, has lately played into the hands of City-based Penna Consulting, a human resources services specialist with market-leading skills in ‘outplacement’, the process of helping to find new gainful employment for workers that have been made redundant.

As this severest of recessions runs its course, the AIM-quoted group’s counter-cyclical outplacement operations will continue to deliver growth. However, following June’s acquisition of recruitment business Barkers from the administrators for £8.6 million cash, which doubled the company’s size, Penna is as well placed to benefit from upswing in the economic cycle as it has been in past periods from downturn.

Established back in 1974, by founders who actually formulated the outplacement concept, Penna is a highly diversified concern with a strong recent track record. Under CEO Gary Browning, the strongly cash-generative, dividend-paying company is pursuing an ambitious and clear strategy that should result in further organic growth. Financially strong, Penna is also scouting for further sizeable acquisitions in the human resources services space.

Strategy

UK focused, but able to deliver internationally, Penna is on a strategic mission to help organisations improve performance through their people. Its service range spans the entire employment lifecycle and includes advertising communications and recruitment. In fact, the company is the biggest UK recruitment advertising agency, helping long-term clients in both the public and private sectors to attract candidates using print and, increasingly, digital means.

Penna also recruits executives and supplies executive interims (its executive interim team is the UK’s second biggest) and has benefited from its focus on the public sector throughout the downturn. As the economy picks up, it plans to expand into commercial sectors.

Further services include board and executive coaching, as well as leadership and performance consulting. Pleasingly, the coaching side of the business, which could be viewed as a somewhat discretionary service, has held up rather well. According to the enthusiastic Browning, ‘A lot of the banks now use coaching and it has maintained its revenues. We advise clients not to cut that because it is an investment.’

Penna is perhaps best known in City circles for its ‘career transition’ offering, more commonly known as ‘outplacement’, a part of the business that has been going great guns amid the downturn.

‘Basically, everything we do is sold to HR [human resources],’ explains Browning. ‘We have over 2,000 clients, including 70 per cent of the FTSE 100, and cross-selling is a key part of our strategy.’ The customer roster is both impressive and diverse, littered with names including Alliance Boots, Alcatel, Bank of America, BT, BAE Systems, ITV and PC World. Over in the public sector, DEFRA, the Department for Constitutional Affairs (DCA), the Home Office, the Learning and Skills Council and even the Police Service of Northern Ireland are just some of the procurers of its services.

Hitherto, the company has been best known for helping employers with the implementation of redundancy programmes. Needless to say, amid the worst recession for generations, the "outplacement" business has proved the key growth driver and should continue to grow for the next two to three years.

‘We have been known to date for outplacement and we are not ashamed of that,’ says the loquacious Browning. ‘It has driven our growth and we are UK number one with a 34 per cent share.

But with Barkers, we decided to break this cycle once and for all. Barkers, the oldest advertising agency in the world, was close to a £100 million business a few years ago and it fills that hole in our strategy’.

By buying Barkers, a sound and profitable operation bought from the administrators of BNB Recruitment Solutions, Penna transformed its previous bias towards outplacement. Now, 25 per cent of revenues are generated from outplacement and 75 per cent from recruitment-related business, ensuring that in the next upswing Penna won’t be disadvantaged by being ‘sub-scale’ in recruitment. Contributing £16.4 million of sales in Penna’s first half to September, the Barkers acquisition has brought in complementary services, while widening the client base.

Looking to the future, Browning says, ‘We want to do more substantial acquisitions, possibly in the areas of training and development. But they need to fit well, have a brand and be substantial’.

Management

In the CEO hot seat is the affable yet determined Gary Browning, a qualified accountant who joined Penna in 2002, was made director of operations in 2004 and then joined the board in early 2005.

A University of Warwick graduate whose earlier career included a 12-year stint with advertising and marketing giant WPP, Browning has big ambitions for Penna and continues to cast his eye over suitable acquisitions to help the business grow. When not diverting his energies into Penna’s profitable growth story, he is a passionate supporter of Liverpool Football Club.

Overseeing developments from the chair is the experienced Stephen Rowlinson, who was chief executive of Sanders & Sidney (Penna in its previous guise) in the early 1990s and whose CV includes work with McKinsey. Rowlinson joined the Penna board in late 2004 and assumed the chairmanship in February 2005.

Overseeing the numbers – Penna has pleased analysts with its recent tight control of costs – is David Firth, who earned his accountancy spurs with Thomson McLintock in 1985 and joined the Penna board in the second half of 1999, having previously been the finance director of Parity Plc.

On the non-executive side, management can call upon the advice of the seasoned Sir James Harvie-Watt, who joined the board in 1995 and was previously managing director of Wembley Stadium Ltd and a director of other leisure sector companies.

The group’s second non-executive voice is qualified barrister Richard Stillwell, whose credentials include a 26-year career with chemicals giant ICI. Stillwell, who joined the board in 2002, also acts a non-executive director at non-woven fabrics producer Fiberweb and printing group St Ives.

Prospects

Having reported 176 per cent growth in pre-tax profits for the year to last March, Penna recently unveiled sparkling half-year figures to September, achieved in spite of the distractions of the Barkers deal.

Sales were increased 68 per cent to £48.4 million and pre-tax profits, before one-off acquisition costs, improved 56 per cent to £3.5 million. Even stripping out the transformative Barkers, like-for-like sales grew 11 per cent to £32 million and pre-tax profits were upped 47 per cent to £3.4 million, driven by improving margins and tight cost controls.

With its portfolio of businesses continuing to generate cash, Penna closed the half with zero bank debt and £6.7 million cash in its coffers, allowing management to propose a 50 per cent increase in the interim dividend to 3p per share.

Prospects remain upbeat in the counter-cyclical outplacement business, where Penna is supremely well placed as the UK’s biggest career transition player and where visibility is decent, with services typically procured under two- to three-year deals. The outplacement operation grew by 28 per cent in the first half and is likely to thrive throughout 2010 and 2011 as the recession rumbles on.

Significantly, although demand for outplacement grows through periods of recession, as companies and organisations downsize, activity levels continue through periods of economic growth and may even surge during an M&A boom. And even if economic upswing results in slower growth in outplacement, the newly enlarged recruitment operations should pick up the pace and take over as the group’s growth engine.

Penna has the financial firepower to pursue any suitable, sizeable, acquisitive possibilities that may arise and is particularly well positioned to capitalise on the inexorable rise of digital advertising in the human resources services markets.

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