Recall Inaugural Results - Year Ended 30 June 2014

-- Revenue growth of +6.7%, ahead of guidance

-- Platform set for growth

SYDNEY, Aug. 25, 2014 /PRNewswire/ -- Recall Holdings Limited (ASX: REC), a global leader in information management, today releases its first set of full year results. Unless otherwise stated, all financials in this announcement are presented on a pro forma basis, as if the legal entity structure of Recall as at 18 December 2013 (date of Demerger from Brambles) was in existence for both reporting periods[1]. The Recall Board believes that the pro forma financial information is the most appropriate basis on which to assess Recall's performance for these results. Financials are presented in USD and comparisons to the prior corresponding period are presented on a constant currency basis[i].

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• Demerger from Brambles successfully completed
• Strong revenue growth of +6.7% - ahead of guidance
• Growth in underlying profit of +3.7% - in line with guidance
• Carton holdings increased by +9.2% - all regions delivered net carton growth
• Document Management Solutions (DMS) revenue growth +9.1%
• Major new customer wins provide strong momentum for FY15 and beyond
• Six acquisitions completed; adding approximately $44 million in incremental revenue in FY15
• Net debt reduced to $484 million at 30 June 2014, down from $502 million at 31 December 2013 (net debt to EBITDA was approximately 2.4X at 30 June 2014)
• Organisation build out substantially complete - overhead cost, as a percent of revenue, to plateau in FY15
• Continuous improvement program (IMPACT) driving cost efficiencies
• Commenced implementation of a major Facility Optimisation Program
• Digital strategy supporting future growth to launch in FY15
• Secure Destruction Services (SDS) strategic review - North American improvement plan implemented and German SDS business to be sold
• First dividend determined - 8.0 Australian cents per share

Commenting on the results, President and CEO Doug Pertz said, "During our first financial year as a public company, Recall has established a platform for growth and made progress across each of our three strategic objectives: sustainable profitable growth, operational excellence and innovation for the future, which includes a truly differentiated digital strategy. I would like to thank our shareholders, customers and employees for your support during what has been a rewarding first year.

"Recall generated sales revenue growth of +6.7%, ahead of guidance provided at the half year trading update. This accelerated growth was achieved through +3.0% organic and +3.7% acquisition growth. Storage/retention revenue grew by +7.0% and service and activity was also up +7.1%.

"The group revenue performance was underpinned by growth of +9.1% in DMS, where net carton volumes increased +9.2%. All regions generated net carton growth. Data Protection Services (DPS) revenue was up +11.7%, due to organic growth and the impact of the acquisition of Recall Singapore.

"Overall revenue and earnings were negatively impacted by SDS, which experienced an -8.6% revenue decline due to the re-pricing of a major customer and finalisation of a large contract in North America in FY13. After a full strategic review, the North American SDS unit implemented a business improvement plan, which should result in improved margins and revenue growth in FY15. In addition, the German SDS business will be sold.

"Recall had a number of large customer wins in FY14, including HSBC, QBE, a Canadian Government agency and BNP Paribas Personal Finance, supporting strong organic growth momentum into FY15 and beyond. Six acquisitions have been completed since Demerger and our acquisition pipeline is building. These are significant achievements that will continue to accelerate sustainable profitable growth.

"As a key component of our third strategic objective, innovation for the future, Recall is developing unique digital services to enable customers to secure, manage and govern all their physical and digital content, regardless of where it resides. Two products are in development, the Recall Customer Portal and an Information Governance Solution, which are targeted at both current and potential Recall customers, with a focus on the SME market. Trials are underway and commercial deployment is scheduled during FY15."

Regional results

Recall regions made significant progress in FY14. The Americas reported sales revenue growth of +4.1%, driven substantially by increased DMS volume and pricing, offset by reduced SDS revenue. In addition, all Brazilian services lines realised double-digit growth. Europe delivered +8.0% revenue growth, driven by a rebound in DMS activity and supported by sales productivity gains. Revenue in Asia grew significantly, including the Recall Singapore acquisition[2], supported by positive organic growth in volume and activities.

Within Australia/New Zealand, revenue declined by -0.9%. In a competitive market environment, Recall generated positive carton growth and maintained its leading market position. The increase in service revenues and volume gains was offset by strategic pricing. With a focus on sales and marketing, supported by operational improvement programs, revenue growth and earnings improvement is expected in FY15. Additionally, Recall has signed a Letter of Intent with one of Australia's leading banks to provide exclusive records management services as part of a long term agreement and recently completed a tuck-in acquisition of Access Records Management.

Financials

During 2014, the focus on operational excellence delivered a gross margin improvement of 0.8 ppts. Recall is targeting further improvement through the Facility Optimisation Program, increased racking and building utilisation rates, continued control over direct costs and a greater focus on strategic sourcing.

Overhead costs increased as a percentage of revenue predominantly due to the build-out of sales and marketing capabilities.

Cash flow generation improved in the second half of FY14. Consequently, net debt at 30 June 2014 was $484 million, down from $502 million at 31 December 2013. This reduction included an outflow of $47 million for the acquisition of CitiStorage. At 30 June 2014, the net debt to EBITDA ratio was approximately 2.4x, and well within Recall's financing covenant of less than 3.5x.

Total capital expenditures during the year were $72.8 million, the majority of which was for business growth. In particular, Recall invested in racking capacity, client acquisition costs and new DMS facilities in the USA, Canada, Brazil, Malaysia, India and Thailand.

The Board has determined that a final dividend of 8.0 AUD cents per share, which will be unfranked and classified as 100% conduit foreign income, will be paid in Australian dollars on 23 October 2014, to those shareholders on the Recall register on 1 October 2014.

Outlook and dividend policy

Recall is confident that actions taken during FY14 have established the platform for accelerating sustainable, profitable growth.

Organic growth momentum is building, driven by recent customer wins and supported by re-investment in sales and marketing capabilities. In addition, acquisitions completed during FY14 and to date in FY15 will add revenue growth of over +5% in FY15.

The re-investment in sales, marketing and other resources is substantially complete. Due to the full year impact of costs added, overhead as a percentage of revenue is expected to plateau in late FY15. In addition, incremental operating and capital costs related to digital product development will be incurred.

In FY15, Recall expects to deliver revenue growth approaching high single digits, and EBIT growth to be less than revenue growth, on a constant currency basis, and after adjusting for the expected disposal of the German SDS business.

The effective tax rate of the group in FY15 is expected to be approximately 37%.

Recall's Board has adopted a dividend policy with a long term target dividend pay-out ratio of 55-70% of net profit after tax, after taking account of the future funding needs of the business. This policy will be kept under review by the Board and may change over time.

The Board has confirmed that Recall intends to frank future dividends to the extent practicable, which is likely to mean partial franking in the medium term. The unfranked component of Recall's dividends paid to non-Australian residents is intended to be conduit foreign income to the extent possible and therefore not subject to Australian withholding tax. However, there is a risk that some or all of the unfranked component may be subject to Australian withholding tax.

Recall's outlook is based on assumptions regarding present and future business strategies and the environment in which Recall will operate in the future. Recall's future results are subject to market conditions and unforeseen circumstances and risks that may arise. This earnings release, the investor presentation, Appendix 4E, and conference call / webcast details are all available on the company's Investor Relations website at Recall.com.

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About Recall
Recall is a global leader in information management solutions, offering customers complete management of their physical and digital information. Recall's innovative solutions empower organizations to make better business decisions throughout the information lifecycle, while assuring regulatory compliance and eliminating unnecessary resources, time and costs. Recall services more than 80,000 customer accounts in over 300 dedicated facilities, spanning five continents in 24 countries. For more information, please visit recall.com.

Selected financial data

Statutory balance sheet

The balance sheet presented below has been extracted from the Appendix 4E which has been prepared on the basis of statutory requirements under International Financial Reporting Standards (IFRS) and Australian Accounting Standards (AAS), such that the results of entities acquired as part of the demerger from Brambles Limited (Brambles) have only been included from their date of acquisition. Therefore, Recall's statutory financial position and financial performance as at and for the year ended 30 June 2014 includes a number of material entities not included within the 2013 financial results.

[1] Due to corporate restructuring leading up to Demerger, not all of REC's subsidiary companies were part of REC for the entire 12 month period to 30 June 2014. As such, REC's statutory reported results as presented in the Appendix 4E will differ from the consolidated pro forma results of the REC group.

[2] Recall Singapore was accounted for as a joint venture until 31 October 2013 (date of acquisition), and consequently no revenue was reported until that time.

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[i] Constant currency results are presented by translating both current and prior corresponding period foreign currency results into USD at the exchange rates applicable in the comparable period, so as to show relative performance between the two periods before the translation impact of currency fluctuations.