TIDMEMR
RNS Number : 1330Y
Empresaria Group PLC
01 March 2017
1 March 2017
Empresaria Group plc
("Empresaria" or the "Group")
Results for the year ended 31 December 2016
Strong growth in profit before tax and adjusted earnings per
share
Empresaria, the international specialist staffing group, has
continued to deliver on its strategy with record profit before tax
and growth in adjusted earnings per share.
% change
(constant
Financial Highlights 2016 2015 % change currency)
---------------------- ---------- ---------- ----------- ------------
Revenue GBP270.4m GBP187.3m 44% 33%
Net fee income GBP59.0m GBP49.2m 20% 10%
Operating profit GBP8.5m GBP7.6m 12% 3%
Adjusted operating
profit* GBP9.8m GBP8.0m 23% 11%
Profit before tax GBP7.9m GBP7.1m 11% 0%
Adjusted profit
before tax* GBP9.2m GBP7.5m 23% 11%
Earnings per share
(diluted) 9.3p 9.3p -
Adjusted earnings
per share* 11.3p 9.9p 14%
Final dividend 1.15p 1.0p 15%
-- Fourteen consecutive quarters of net fee income growth
-- Five consecutive years of double digit % growth in adjusted earnings per share
-- Conversion ratio increased to 16.6% (2015: 16.3%)
-- Proposed final dividend increased by 15% to 1.15p (2015: 1.0p)
-- Net debt increased to GBP10.5m (2015: GBP7.3m) following the investments made in the period
-- Strong profit growth in German business, IT sector in Japan
and Executive search in South East Asia
-- Successful integration of Pharmaceutical Strategies
-- Investments in Rishworth Aviation and ConSol Partners: strong
brands with significant growth potential
* adjusted to exclude amortisation of intangible assets,
exceptional items, gain or loss on disposal of business and fair
value charges on acquisition of non-controlling interests.
Chief Executive Joost Kreulen said:
"Empresaria has delivered another year of record profit and
strong growth in adjusted earnings per share, demonstrating the
strength of our diversified business model. We are focused on
delivering on our strategy: strengthening a multi-branded group,
with an emphasis on developing leading brands that are diversified
and balanced by geography and sector.
Alongside the solid performances across a number of countries,
we are particularly pleased to have secured two significant
international investments during the year; Rishworth Aviation and
ConSol Partners. Both brands operate in sectors with good long-term
growth prospects and complement the Group's 'Invest & Develop'
strategy. We look forward to the growth opportunities that these
businesses have as part of the Group.
We continue to see exciting growth opportunities to develop our
Group and deliver increased profits and we look to 2017 with
confidence."
- Ends -
Enquiries:
Empresaria Group plc via Redleaf
Joost Kreulen, Chief Executive
Officer
Spencer Wreford, Group Finance
Director
Arden Partners (Nominated Adviser
and Broker)
John Llewellyn-Lloyd / Steve Douglas
/ Ciaran Walsh 020 7614 5900
Redleaf Communications (Financial 020 7382 4730 empresaria@redleafpr.com
PR)
Rebecca Sanders Hewett / Sam Modlin
Notes for editors:
-- Empresaria Group plc is an international specialist staffing
group with 21 brands operating in 19 countries across the globe
including the UK, Germany, Japan, India, UAE, Indonesia, Chile,
Australia, Thailand, Singapore, Finland, USA, New Zealand, China,
Malaysia and the Philippines.
-- Empresaria offers temporary/contract and permanent staffing
solutions as well as Offshore Recruitment Services in seven key
sectors: Technical & Industrial, Aviation Services, IT &
Design, Professional Services, Healthcare, Executive search and
Retail.
-- Empresaria applies a multi brand, management equity
philosophy and business model, with Empresaria group company
management teams holding significant equity in their own
business.
-- Empresaria is listed on AIM under ticker EMR. For more information: empresaria.com
Chairman's statement
Performance overview
Trading summary % change % change
constant
GBP'm 2016 2015 currency**
-------------------- ------ ------ --------- ------------
Revenue 270.4 187.3 44% 33%
-------------------- ------ ------ --------- ------------
Net fee income 59.0 49.2 20% 10%
-------------------- ------ ------ --------- ------------
Operating profit 8.5 7.6 12% 3%
-------------------- ------ ------ --------- ------------
Adjusted operating
profit* 9.8 8.0 23% 11%
-------------------- ------ ------ --------- ------------
Profit before
tax 7.9 7.1 11% 0%
-------------------- ------ ------ --------- ------------
Adjusted profit
before tax* 9.2 7.5 23% 11%
-------------------- ------ ------ --------- ------------
* Adjusted to exclude amortisation of intangible assets,
exceptional items, gain or loss on disposal of business and fair
value charges on acquisition of non-controlling interests.
** The constant currency movement is calculated by translating
the 2015 results at the 2016 exchange rates.
The Group has delivered another year of strong growth in profit
and adjusted earnings per share. We have again demonstrated the
strength of our multi-branded business model, with a strategy to be
diversified by geography and sector and to develop leading brands
with sector expertise. As we enter 2017, the Group continues to
strengthen its position, as our focus on delivering against our
strategy is reflected in our trading performance and resilience to
uncertain market conditions.
- Revenue grew by 44%, primarily in the Technical &
Industrial sector and from the investments made in 2016.
Additionally, our business mix has changed following our decision
in the last few years to reduce our exposure to low margin, high
volume business in the UK Technical & Industrial sector.
- Net fee income grew by 20% with profit before tax up 11% (23%
on an adjusted basis). We are pleased to report fourteen
consecutive quarters of year-on-year growth in net fee income.
- Share of net fee income from Temporary recruitment is up to
60% (2015: 55%), continuing our focus to deliver a higher
proportion of our income from contracting, which is generally more
predictable than permanent recruitment.
- A balanced and diversified spread of operations, with 68% of
net fee income from outside the UK (2015: 63%). We generate 72% of
our net fee income from the four largest staffing markets in the
world (USA, Japan, UK and Germany) but also 28% from high growth
markets including South East Asia, China, India and Australia.
- We have invested in two sectors with exciting long-term growth
prospects through our investments in Rishworth Aviation (Aviation
sector) and ConSol Partners (IT, Digital & Design sector).
These transactions completed three important investments in a
twelve-month period to October 2016, starting with Pharmaceutical
Strategies in October 2015, adding strong brands to the Group that
have good growth potential in the years to come.
Group revenue of GBP270.4m was up 44% on the prior year of
GBP187.3m, with a 50% growth in temporary revenue and 7% growth in
permanent revenue. The growth in net fee income was 20%, with a
reduced temporary margin of 14.5% (2015: 16.7%). This is largely
due to Rishworth Aviation having a lower margin than the rest of
the Group at 6%, although this margin is earned over a long period
as their temporary contracts typically last between three and five
years. Also in Germany there was a reduced margin from changes in
the client mix and tariffs.
We continued to see an improvement in our conversion ratio, for
the fifth year in a row, increasing from 16.3% to 16.6% with costs
controlled despite further investments in the business. Operating
profit grew 12% to GBP8.5m (2015: GBP7.6m), after a GBP0.7m
increase in amortisation charges to GBP1.1m. With interest costs
higher due to the debt taken on to help fund the investments,
profit before tax growth was 11% to GBP7.9m (2015: GBP7.1m). On an
adjusted basis, excluding amortisation, exceptional items and fair
value charges on the acquisition of non-controlling interests, both
operating profit and profit before tax grew 23% over the prior
year.
Diluted earnings per share was unchanged at 9.3p, again impacted
by higher amortisation costs. On an adjusted basis it grew by 14%
to 11.3p, delivering the fifth year in a row of double digit
growth.
The results this year have been impacted by currency movements,
especially in the second half of the year. There was a small
negative impact on the trading results, but overall it has been
positive for the Group, with a benefit from the translation of
overseas profits into Sterling. On a constant currency basis
revenue growth was 33%, net fee income was up 10% and adjusted
profit before tax was up 11%.
After seeing our total debt level reduce through 2014 and 2015,
this year it increased to GBP10.5m (2015: GBP7.3m) as we took the
decision to fund our investments in the year by using operating
cash flows and new bank debt. We entered into a five year Revolving
Credit Facility with HSBC Bank plc on 30 June 2016. Interest rates
are at low levels and are generally expected to remain low in the
short-term. This access to low cost debt with our long-term banking
partner provided the best option to finance the investments in
2016. Our underlying philosophy remains to fund investments through
equity or operating cash flows and to use debt for working capital
funding. We continue to target a 'debt to debtors' ratio of no more
than 25%. We measure this by excluding the cash held by Rishworth
Aviation for pilot bonds, which ultimately is repayable to pilots
at the end of their contracts, and at year end this ratio was 38%
(2015: 23%) (see note 12 for further details). We expect to reduce
this to 25% by the end of 2018, in line with our five year
plan.
Investments
We follow an Invest and Develop strategy, with a focus on
investing in our existing brands, to help develop them to build
long-term sustainable profit streams. To complement this, we also
look for external investment opportunities to accelerate the growth
of the Group and increase our presence in sectors where we feel we
are under-represented.
In line with this strategy, in 2016 we made two significant
investments. In July 2016 we invested in Rishworth Aviation, a
pilot leasing staffing business operating from offices in New
Zealand and Sweden, servicing clients throughout Asia Pacific, UK,
Continental Europe and Africa. Rishworth provides pilots on a
contracting basis and is already diversified geographically. Air
travel is predicted to increase with high growth rates over the
mid-term, especially in the emerging markets in Asia and Africa
where Rishworth has a good presence, and we see good prospects for
the business over the medium and long term.
In October 2016 we invested in ConSol Partners, which operates
in the IT staffing sector, servicing the high growth areas of
Communications & mobile, Cloud technologies and the Digital
supply chain. They have offices in the UK and USA, with the UK team
primarily servicing clients across the UK and Continental Europe
and the USA team focused on its domestic market. This investment
strengthens the Group's presence in an important sector, which is
exhibiting strong growth trends and has excellent potential.
People
A key part of our business model is subsidiary management
equity, aligning key management and Empresaria shareholder
interests through brand management holding shares in their
operating companies. This approach helps Empresaria to attract and
retain the best people. At the end of the year we had 57 management
shareholders, owning shares in different Group companies, up from
42 last year.
The Group has a dedicated Board and we are working hard to
deliver growth, manage risk and improve our long term financial
performance, to generate higher shareholder returns. The Board is
extremely experienced, with over 100 years of combined staffing
industry experience.
The success of the Group comes from the hard work and commitment
of our staff and the Board would like to thank every individual for
their contribution to the business.
Governance
We have an established Governance system in place to deliver on
our vision. The Group follows high standards of corporate
governance which we believe is a core requirement for a successful
business operating a decentralised model across different regions
and brands. There is a strong culture of financial control in the
Group, with clear policies covering corporate conduct and
governance. The Board develops the Group's corporate governance
arrangements with reference to the UK Corporate Governance
Code.
The values and culture of the Group, which are based on shared
ownership and true operational autonomy for brand managers, is very
important to the Board and key to our long-term growth prospects.
We focus our investments towards people that share these
values.
Dividend
The Board has reviewed the dividend in the light of the positive
trading result and overall financial position. In line with our
progressive dividend policy, for the year ended 31 December 2016
the Board has proposed a final dividend of 1.15p per share (2015:
1.0p per share) which, if approved by shareholders at the Annual
General Meeting, will be paid on 31 May 2017 to shareholders on the
register on 5 May 2017.
Outlook
The Group's strategy has delivered strong profit and adjusted
earnings per share growth. We are confident that 2017 will be
another year of profit growth with the Group benefiting from the
potential within its existing brands and also the investments made
in 2016 contributing for a full year.
Our diversification by geography and sector helps to mitigate
against difficult markets and as such we continue to see exciting
opportunities to develop our Group, deliver increased profits and
so enhance shareholder value. We look forward to the year ahead
with confidence.
Tony Martin
Chairman
28 February 2017
Chief Executive's Review
We are pleased to finish the year with a record profit level, an
adjusted profit before tax of GBP9.2m (2015: GBP7.5m). We also grew
the Group with two high quality brands joining during the year,
helping to strengthen our presence in the IT, Digital & Design
sector and entering into the new high growth Aviation sector. Both
brands are already diversified by geography and we believe we can
help them to grow further by being part of our Group.
Our strongest results were in Germany with Headway, Japan with
Skillhouse and South East Asia with Monroe Consulting. We also saw
solid performances in Finland, Australia, China, India, Chile and
within the UK market the Technical & Industrial sector grew
well. Group revenue increased by 44% to GBP270.4m (2015: GBP187.3m)
and net fee income was up 20% to GBP59.0m (2015: GBP49.2m). Our
organic development was offset by weakness within the UK and Middle
East markets. The UK was negatively impacted by market wide lower
confidence levels due to the EU referendum and in the Middle East,
a permanent recruitment market, weak economic conditions persisted
throughout the year. We have mitigated the effects of this with
some restructuring and we believe this will help those businesses
deliver improved results in 2017. As seen historically, the Group
has demonstrated a good track record for quickly responding to
issues within our business and returning those businesses to growth
and as an active Management team we continue to closely monitor
results for all our brands and assist them with both challenges and
opportunities alike. The level of diversification across the Group
mitigates against any individual business, sector or market having
an undue influence on the wider Group results.
The weakening of Sterling during the year helped the translation
of our overseas results. On a constant currency basis we saw
revenue growth of 33%, net fee income growth of 10% and adjusted
profit before tax up 11%. The underlying growth in net fee income
was effectively from the investments made in Rishworth Aviation and
ConSol Partners in 2016 and the full year impact from
Pharmaceutical Strategies that joined the Group in October 2015.
Again this demonstrates the benefit of our strategy to be
diversified and balanced by geography and sector and to focus on
both organic development as well as making selective external
investments, with a slow-down in one sector or region offset by
stronger results elsewhere.
For 2016 we have more than two thirds of our net fee income
generated from outside the UK, with Asia Pacific and UK both at
32%, Continental Europe at 28% and Americas at 8%. We analyse our
regional performance based on the locations where key management
and staff are situated, with the majority of our brands only
working in their domestic market.
Pharmaceutical Strategies, the investment we made in 2015, has
integrated well into the Group. We are pleased that it has grown
its client base and seen an improved penetration across existing
clients. Our decision to invest in the management team, bringing in
additional staff to support the future development of the business,
and their largest client reducing its overall spend on staffing
requirements has resulted in a short-term impact on profitability.
The long-term drivers of growth in the US healthcare market of an
ageing population, increasing levels of obesity and positive
economic conditions remain in place and give us confidence in the
prospects for this business.
The two investments made in 2016 were both clearly aligned to
our strategic goals, being established brands in their sectors,
focused on professional and specialist job roles in sectors with
good long-term growth prospects. They are already diversified
geographically but can also benefit from the Group's coverage and
global footprint. They both have a strong contractor bias and have
delivered good profit growth and we see opportunities for further
growth in the next few years. We are focused on integrating these
businesses into the Group, to ensure they get the maximum benefit
from being part of Empresaria. We continue to see external
investment as an important avenue of growth and development for the
Group and we will look to build up our portfolio of opportunities
through the coming year, especially in areas where we feel we are
under-represented as a Group. From a sector point of view that is
Healthcare and Professional Services and regionally Latin America,
but we keep an open mind to opportunities that present
themselves.
As part of our vision to deliver sustainable growth in earnings
per share, we are following a five year growth plan to 2018. We
have made further progress against this plan with growth in net fee
income of 20% (10% in constant currency) and an increase in the
conversion ratio to 16.6%, the fifth year of continued improvement.
Our 'debt to debtors' ratio increased from 23% to 38%, when
calculated after excluding the cash held for pilot bonds in
Rishworth Aviation, so moves away from our 25% target. This was
following our decision to use debt finance to help fund the
investments made in the year. We expect to achieve our 25% 'debt to
debtors' target by 2018.
5 year plan Target 2016 2015 2014
2014-2018
------------------ ------- ------ ------ ------
Net fee income
growth 10% 20% 10% 5%
------------------ ------- ------ ------ ------
Conversion ratio 20% 16.6% 16.3% 14.7%
------------------ ------- ------ ------ ------
Debt to debtors
ratio 25% 38% 23% 32%
------------------ ------- ------ ------ ------
Organic growth is a core part of our business model and we have
specific plans with each brand to help them develop into leading
brands in their sectors. We are confident that the plans we are
following will help the Group deliver profitable growth across all
of our regions in 2017.
Regional performance
UK
GBP'm 2016 2015 2014
-------------------- ----- ----- -----
Revenue 70.1 62.7 65.8
Net fee income 19.0 18.4 15.9
Adjusted operating
profit 1.5 2.2 2.2
% of Group net
fee income 32% 37% 35%
Average number
of employees 262 224 197
Revenue increased by 12% and net fee income was up 3%, due to
the addition of ConSol Partners from October 2016 and an improved
result in the Technical & Industrial sector following the move
away from low value work in the last few years. This focus on
higher value work also helped lessen the impact from the change in
rules on travel and subsistence in April 2016. At the beginning of
2017 we merged the operations of the FastTrack and Reflex brands.
Both operate within the Technical & Industrial sector and are
complementary in terms of niche focus and client base. We expect to
see cost savings in the back office and a streamlined management
structure, which we hope will also lead to improved top line
performance. The combined business has a good coverage across the
UK with offices in the North, Midlands, London and South and we
have plans to grow their fee-earning staff numbers in 2017.
The investment in ConSol Partners strengthened our presence in
the IT, Digital & Design sector, with our existing brands
operating within the creative niche of this sector. The
contribution from ConSol Partners was positive at the net fee
income level with a small profit contribution before amortisation
charges, but this is offset by the legal and due diligence costs
incurred in making the investment. We expect to see a significant
profit contribution in 2017, their first full year in the Group.
Within the creative niche our brands saw a reduced result,
following increased property costs and short-term impacts from
changes in management. We are confident of an improved result from
these businesses next year.
Our brands in Domestic services, Recruitment-to-recruitment
sales and Retail (new house sales) delivered broadly flat profits
year on year.
We saw the biggest impact from the EU referendum within the
Professional services sector, with net fee income and profit both
down year on year. The market stabilised following the vote, but
activity levels were lower and costs were higher in the year from
both property and staff costs as they invested in building up a
service offering in Finance and accounting.
Continental Europe
GBP'm 2016 2015 2014
-------------------- ----- ----- -----
Revenue 92.0 75.2 76.8
Net fee income 16.8 14.5 15.0
Adjusted operating
profit 4.9 3.9 3.2
% of Group net
fee income 28% 30% 34%
Average number
of employees 127 123 132
Revenue grew by 22% and net fee income by 16%, with strong
profit growth of GBP1.0m to GBP4.9m. There was a reduced temporary
margin in Germany, due to changes in the client mix and pay rate
tariffs. Currency movements were beneficial, with constant currency
growth in net fee income of 2%.
The Headway business in Germany and Austria dominates the region
and we saw a good result in Austria, following a key project win
during the year. The Logistics division in Germany also had strong
results through increased penetration with key clients. In the
temporary staffing division, investments have been made in training
and sales staff to help drive future growth. The business
confidence in Germany is positive as we move into 2017, however, we
are cautious about the short-term prospects for the market. There
are elections in Germany in September 2017 and new legislation will
be implemented in April 2017 which will limit the time a worker can
be on a temporary contract with a client to 18 months, as well as
new equal pay regulations being introduced. We believe the new
rules will be positive for the industry over the medium term but
there may be a short-term dampening effect on demand as clients get
to grips with the new rules. The first direct impact of this
legislation will be in October 2018 and we are working with clients
and advisers on plans to deal with the new rules where they have
long-standing temporary workers.
Our healthcare business continues to improve, with an increasing
proportion of temporary workers from Finland and lower costs,
having closed their Estonian presence at the end of 2015. We are
pleased with the progress being made.
Asia Pacific
GBP'm 2016 2015 2014
-------------------- ----- ----- -----
Revenue 77.3 29.2 27.7
Net fee income 18.6 14.2 12.3
Adjusted operating
profit 2.7 1.6 1.2
% of Group net
fee income 32% 29% 28%
Average number
of employees 795 673 545
Revenue grew from GBP29.2m in 2015 to GBP77.3m in 2016, helped
from July 2016 by our investment in Rishworth Aviation. The growth
in net fee income was 31%, as Rishworth Aviation has a low
temporary margin of 6%, so there is a greater impact on revenue.
Although the temporary margin is low, the quality of the business
is high with contractors on long-term assignments and the company
operating with a good conversion ratio. This investment made a
positive contribution to profit, despite the legal and due
diligence costs associated with the investment. It provides the
Group with an entry to the Aviation sector and is one of the
leading staffing companies in this niche sector. We expect it to
deliver improved profits in 2017 as it contributes for the full
year.
There were strong performances from Skillhouse in Japan (IT,
Digital & Design sector) and Monroe Consulting in South East
Asia and China (Executive search sector). Also, we were pleased
with the results in India and Australia. In India we opened up a
third office in November 2015 to accommodate growth and it is
operating in line with expectations, but profit growth was
curtailed due to currency impacts, as sales and receivables with
the UK contributed less due to exchange rate movements. The Monroe
Consulting brand saw particularly strong results from China and
Malaysia, with China operating in its first full year under the
Monroe brand and Malaysia profitable in its second full year. They
are planning to open up in Vietnam during 2017. The restructuring
of our training business in Indonesia has been successful, but we
expect profit growth to be slow.
Overall the region benefitted from currency movements, with
underlying results excluding currency and investments reducing year
on year, due to poor results in the Middle East. The market was
negatively affected by the drop in oil price and the weak economic
conditions continued into the second half of the year. This
resulted in a loss of business confidence with delayed hiring
decisions which quickly impacted this purely permanent staffing
market. Our net fee income was down 50% over the year. We have
restructured the business, with a reduced headcount and lower costs
and believe it is right-sized for the local market moving into
2017. A small team has also started operating in the UK market, to
help ex-pat candidates returning from the Middle East.
Americas
GBP'm 2016 2015 2014
-------------------- ----- ----- -----
Revenue 31.0 20.2 17.6
Net fee income 4.6 2.1 1.4
Adjusted operating
profit 0.7 0.3 0.0
% of Group net
fee income 8% 4% 3%
Average number
of employees 98 76 68
Revenue grew by 53% to GBP31.0m, with net fee income up 119% to
GBP4.6m. This is primarily from having a full year contribution
from Pharmaceutical Strategies, an investment made in October 2015.
The business made progress in broadening their client base, with
some new clients won and a better penetration across existing
clients. However net fee income was down year on year as their
largest client reduced their agency spending. We also made
investments in the management team to support the platform for
future growth, but this cost had a short-term impact on profits.
The future structure and funding of the Affordable Care Act is
uncertain following the recent change in the US Government. This
has been one of the drivers of growth in the healthcare sector in
recent years, but the key underlying factors of an ageing
population, rising obesity levels and good economic conditions
continue to exist and we believe they will drive growing demand for
healthcare over the medium term.
We also benefitted from three months of trading from the ConSol
Partners USA business.
In Chile, we were pleased with the continued growth, with the
developing areas of permanent and temporary staffing delivering the
highest growth and the traditional outsourcing business remaining
solid.
The Monroe Consulting (Executive search sector) operations in
Mexico and Chile are slowly gaining traction in those markets, but
progress is not as quick as we would like to see. We are closely
monitoring the economic situation, especially in Mexico, following
the new US Government's approach to regional trade.
Finance review
Finance income and costs
Finance income was GBP0.1m (2015: GBP0.1m), all being bank
interest income. Finance costs were GBP0.7m (2015: GBP0.6m), which
primarily related to interest payable on invoice discounting, bank
loans and overdrafts. It also included GBP0.1m of interest on the
late payment of tax following conclusion of a tax audit in
Germany.
Taxation
The total tax charge in the year is GBP3.5m (2015: GBP2.6m)
representing an effective tax rate of 44% (2015:
36%). This rate is higher than the UK rate due to a number of factors:
-- The mix of profits is weighted towards higher tax
jurisdictions, including Germany, Japan, India, Australia and New
Zealand.
-- A deferred tax asset has not been recognised for certain of
the tax losses around the Group and the asset previously recognised
for tax losses has reduced.
-- The level of non-deductible expenses in the year, including
the legal and due diligence costs related to the investments in
Rishworth Aviation and ConSol Partners.
Dividend
During the year, the Group paid a dividend of GBP0.5m in respect
of the year ended 31 December 2015, amounting to 1.0p per share.
For the year ended 31 December 2016, the Board is proposing a
dividend of 1.15p per share, which if approved by shareholders at
the Annual General Meeting, will be paid on 31 May 2017 to
shareholders on the register on 5 May 2017.
Impairment charges and release of contingent consideration
There is a credit to the income statement of GBP0.6m from the
release of contingent consideration for Pharmaceutical Strategies.
This is based on the current and expected trading level over the
next year (being the period covered by the contingent
consideration) and reflects our best estimate of the amount
payable.
There is an impairment charge of GBP0.6m, following a review at
year end of the recoverable amounts of the Group's tangible and
intangible assets. This arose on the following companies:
-- BW&P operating in the Middle East. Following a slow-down
in the local economy and contraction in the staffing market we have
restructured the business, right-sizing it for the current
conditions. We expect improved returns from this business in 2017,
but due to the continuing uncertainties in the market we have fully
impaired the intangibles and goodwill, an amount of GBP0.2m.
-- Our training business in Indonesia, Learning Resources, has
delivered a small profit in the year following restructuring in the
prior year, turning around the losses incurred in 2015. However, we
remain cautious on the prospects for growth in profit over the next
few years and so have fully impaired the goodwill, an amount of
GBP0.2m.
-- In Japan our fashion retail brand, FINES, has delivered
consistent results but profit levels are small. We have a clear
plan to increase the profit level but there is uncertainty on how
successful this will be. We have recognised an impairment charge
against goodwill of GBP0.2m.
Treasury & risk management
Treasury
The Group's treasury function is managed centrally. Under the
Group's treasury policy speculative transactions are not permitted
and where possible liabilities, typically debt, match the location
and currency of the related assets. The following matters are
reserved for Board approval:
- Changes to the Group's capital structure.
- Approval of Group financing arrangements or significant changes to existing arrangements.
- Approval of treasury policies and any activity involving
forward contracts, derivatives, hedging activity and significant
foreign currency exposures.
- Approving the appointment of any of the Group's principal bankers.
Treasury is managed to deal with the following risk areas.
Liquidity and funding risk
The Group maintains a range of appropriate facilities to manage
its working capital and medium-term financing requirements. At the
year-end the Group had banking facilities totalling GBP52.0m (2015:
GBP36.7m) with the increase mainly coming from the new revolving
credit facility. We also increased overdraft and loan facilities
overseas, and the UK invoice financing facility increased by
GBP4.0m with ConSol Partners joining the Group and adding their
facility. We aim to transfer them to our Group facility during the
first half of 2017. The amount of facility undrawn of GBP15.4m
(2015: GBP15.6m) excludes the headroom on the invoice financing
facility, which is available to the UK companies only. At 30 June
2016 we entered into a new GBP10.0m Revolving Credit Facility with
HSBC Bank plc to provide investment funding. There is also a
GBP5.0m accordion which has been agreed in principle by the bank
but would need new credit approval for any draw down from this
amount.
2016 2015
GBPm GBPm
Overdrafts (UK) 6.2 6.5
Revolving credit facility (UK) 10.0 -
Term loan (UK) 3.5 4.5
Overdrafts and other loans
(non-UK) 15.3 12.7
----- -----
Total overdrafts and loans 35.0 23.7
Invoice financing facility
(UK) 17.0 13.0
52.0 36.7
----- -----
Amount of overdraft and loan
facility undrawn at year-end 15.4 15.6
Reported Group net debt increased to GBP10.5m at 31 December
2016 (2015: GBP7.3m). This includes cash held by Rishworth Aviation
for pilot bonds, amounts which are repayable to pilots or the
client when their contract ends. When calculating our 'debt to
debtors' ratio we exclude the cash held as pilot bonds and this net
debt level was GBP15.7m (2015: GBP7.3m). The 'debt to debtors'
ratio has increased to 38%, from 23% last year due to the
investment spend.
2016 2015
GBPm GBPm
Cash at bank and
in hand 18.0 7.7
Overdraft facilities (2.8) (2.3)
Invoice financing (8.9) (6.9)
Bank loans (16.8) (5.8)
------- ------
Reported Group net
debt (10.5) (7.3)
Pilot bonds (5.2) -
------- ------
Group net debt for
calculating 'debt
to debtors' ratio (15.7) (7.3)
------- ------
As part of the new Revolving Credit Facility we need to meet
bank covenant tests on a quarterly basis, the first test being for
the quarter ended 30 June 2016. All tests have been met during the
year. The covenants, and our performance against them, at year end
are as follows:
Covenant Target Actual
------------------------ ---------------- ---------
< 2.75
Net debt:EBITDA* times 0.6
------------------------ ---------------- ---------
Interest cover > 5.0 times 19.3
------------------------ ---------------- ---------
Debt service > 1.25
cover times 6.5
------------------------ ---------------- ---------
* target started at 3.0, reducing to 2.75 from
the quarter ended 31 December 2016 and to 2.5
from the quarter ended 31 December 2017
-----------------------------------------------------
Interest rate risk
The Group's bank facilities are subject to floating interest
rates. This is expected to match the interest costs with the
economic cycle (eg when interest rates are higher there is
typically better economic growth and so for a cyclical industry
such as recruitment, profits should be greater when the economy is
performing positively). The overdraft and invoice financing
facilities are used to fund working capital requirements for
temporary recruitment businesses. During a downturn there is
typically an unwinding of working capital as trade receivables are
collected, so reducing the financing requirement and subsequent
interest cost.
Within the UK Group the majority of bank accounts are included
in a cash pooling arrangement. An interest optimisation model
allows currency balances (including overdrafts) to be included
within the cash pooling arrangement. With interest income not
generally paid on current accounts, the Group aims to minimise the
external interest cost by repatriating surplus funds from around
the Group to minimise the use of the overdraft facilities.
Finance costs were GBP0.7m (2015: GBP0.6m), which primarily
related to interest payable on bank facilities but also included
GBP0.1m for interest on late paid tax. The effective interest rate
for bank facilities for the year was 2.6% (2015: 2.8%).
Foreign exchange risk
There was no foreign exchange from trading in the year (2015:
gain of GBP161,000).
The Group remains open to translation risk from reporting
overseas results in Sterling. We do not actively hedge this
exposure, with the diversity of operations across different
countries providing an element of natural hedge. During the year we
were positively impacted by movements in exchange rates on the
translation of Group results, the largest are detailed below:
Currency Decline in Sterling
in the year using
average rates
(P&L)
-------------- --------------------
Japanese
Yen 20%
-------------- --------------------
Indonesian
Rupiah 12%
-------------- --------------------
US Dollar 12%
-------------- --------------------
Australian
Dollar 11%
-------------- --------------------
Euro 11%
-------------- --------------------
Chilean Peso 8%
-------------- --------------------
There are a small number of forward currency contracts in place
at IMS and ConSol Partners. The amount covered by these at year end
was GBP0.6m (2015: Nil).
Credit risk
The main credit risks arise through the use of different banks
across the Group and on the Group's trade receivables. The credit
ratings of the banks used within the Group are monitored with a
target that no more than 10% of Group cash is held in banks with a
rating below BBB (Fitch rating) or equivalent. This target was
fully met throughout the year.
Debtor days are reviewed monthly with high balances followed up
with local management. Average debtor days for the Group in 2016
were 47 (2015: 51), with a year-end balance of 41 (2015: 52 days).
These figures were helped by Rishworth Aviation joining the Group
as they have low debtor days, with airlines typically paying either
in advance or within a short period for pilot salary costs. On a
comparative basis, excluding Rishworth Aviation, the year end and
average Group debtor days were 52.
The debtor days in UAE remain higher than the Group average. The
outstanding debtor balance has reduced, but with the poor economic
conditions in the region we have seen a higher level of bad debt
write off than normal. As a Group our bad debt expense was GBP0.6m
in the year, up GBP0.3m on the prior year.
Management equity philosophy, minority interests &
investments
Management equity philosophy
A key component of our business model is management equity,
where senior management own shares directly in the operating
companies they are responsible for.
Where we acquire a majority stake in a business, the shares
remaining with the founder are called "first generation shares".
There are no material changes to the rights belonging to these
first generation shares retained by founder management. Our model
also enables management to acquire "second generation shares". This
will often be when the first generation shares have been acquired
by Empresaria and we want to incentivise the next tier of
management in the operating company to grow its business to the
next level. Management buy these second generation shares at market
value, investing their own cash, which is at risk if the business
does not perform. To help lower the market value of the second
generation shares (to make it affordable for management to acquire
a meaningful stake in the business they are responsible for) and to
protect the profit that we have already acquired, we set a
'threshold profit' level for valuing second generation shares.
These second generation shares only start creating value for
management if the profit grows above the 'threshold profit' level.
The second generation shares typically have restrictions, such as a
limited or no entitlement to dividends and the fair value paid by
the management shareholder reflects these restricted rights.
Non-controlling interests
Based on the results for the year ended 31 December 2016, the
total value of all non-controlling interests (shares held by
management in the operating companies they are responsible for), if
purchased in full in 2017 using the valuation mechanisms in
existing shareholders agreements, would total GBP9.0 million (2015:
GBP3.6 million), ignoring any potential discounts under the
shareholders agreements. There is no obligation on the Group to
acquire the shares held by management at any time.
In some situations the consideration payable under the
shareholders agreement for second generation equity may be greater
than the fair value of the shares under IFRS 13, where there are
restrictions over the rights of the shares, typically over
dividends. The valuation mechanism in the shareholders agreements
uses an earnings multiple, which does not differentiate between
shares with restricted rights and those without restrictions. If
the price paid for the shares is in excess of the fair value, this
additional amount paid is recognised as a charge in the income
statement. These charges are treated as adjusting items when
presenting the adjusted operating profit, adjusted profit before
tax and adjusted earnings per share.
In June 2016 we increased our shareholding in Monroe Consulting
(Thailand) by 10%, taking our interest up to 70%. The consideration
of GBP0.2m was paid in cash, which was charged in the income
statement (2015: GBPNil). Based on the results for the years ended
31 December 2016, for those shares with restricted rights, the
amount payable using the valuation mechanisms in the existing
shareholders agreements that is in excess of the fair value, if
purchased fully in 2017 would total GBP2.4 million (2015: GBP1.3
million), ignoring any potential discounts under the shareholders
agreements.
In April 2016 we increased our interest in Ball and Hoolahan (IT
& Design sector in the UK) from 75% to 100%, acquiring first
generation shares from the founder who left the business as part of
a planned transfer of ownership. The consideration was GBP0.2m, all
paid in cash and accounted for as an increase in our
investment.
During the year ended 31 December 2016, management acquired
second generation shares in the Headway Group of companies,
Pharmaceutical Strategies and Monroe Consulting (Malaysia). These
shares all have restricted rights.
Investments and disposals
During the year, the Group made the following investments:
-- On 5 July 2016 we invested in 82.6% of the shares in
Rishworth Aviation. Total consideration was US$10.0m (GBP7.5m),
paid fully in cash on completion. The remaining 17.4% interest is
held by the senior management team in line with our management
equity philosophy. Management have entered into our standard
shareholders' agreement, with shares expected to be held for a
minimum holding period of three to four years before they can be
offered for sale, over a minimum of a further two years, with no
obligation on Empresaria to acquire them.
-- In 6 October 2016 we invested in 65% of the shares in ConSol
Partners. Total consideration was GBP9.5m, with GBP3.9m paid in
cash on completion and a deferred amount of GBP5.6m payable in the
first quarter of 2017. In January 2017 GBP3.2m was paid in cash and
a further GBP2.4m is expected to be paid before the end of March
2017. Management have entered into our standard shareholders'
agreement, with shares expected to be held for a minimum holding
period of three to four years before they can be offered for sale,
over a minimum of a further two years, with no obligation on
Empresaria to acquire them.
A deferred consideration payment of GBP3.0m was paid in cash in
relation to the acquisition of Pharmaceutical Strategies in October
2015. No further payments are expected under this agreement, with a
GBP0.6m release in the year ended 31 December 2016 to reflect our
best estimate of the amount payable.
The Group received GBP0.1m in deferred consideration from
disposals made in 2013 of the Bar 2 payroll business and in March
2015 of the GiT business.
Cashflow
Net debt increased by GBP3.2m in the year to GBP10.5m (2015:
GBP7.3m). The main areas of expenditure were on business
investments, a net GBP6.4m including cash acquired as part of the
investment of GBP7.9m. This includes cash held for pilot bonds,
which is GBP5.2m at year end. These bonds are repayable to the
pilot or client over the period of the pilot contract and a
corresponding liability is recognised on the balance sheet. There
was also capital expenditure on fixed assets of GBP0.8m, dividends
to shareholders of GBP0.5m, with a net GBP1.2m working capital
inflow. Tax payments were GBP4.7m, significantly up on the prior
year, through a combination of increasing profits and the
conclusion of a tax audit requiring an additional tax payment.
Post balance sheet events
There were no post balance sheet events.
Going concern
The Board has undertaken a recent and thorough review of the
Group's budget, forecasts and associated risks and sensitivities.
The Group's UK and German overdraft facilities were renewed in
February 2017 for a further 12 months. Given the business forecasts
and early trading performance, the Group is expected to be able to
continue in operational existence for the foreseeable future, being
a period of at least twelve months from the date of approval of the
accounts. As a result, the going concern basis continues to be
appropriate in preparing the financial statements.
Joost Kreulen Spencer Wreford
Chief Executive Officer Group Finance Director
28 February 2017
Consolidated income statement
2016 2015
Note GBPm GBPm
Continuing operations
Revenue 2 270.4 187.3
Cost of sales (211.4) (138.1)
Net fee income 2 59.0 49.2
Administrative costs (49.2) (41.2)
---------- ----------
Adjusted operating profit* 9.8 8.0
Exceptional items - -
Fair value on acquisition of non-controlling shares (0.2) -
Intangible amortisation (1.1) (0.4)
---------- ----------
Operating profit 2 8.5 7.6
Finance income 5 0.1 0.1
Finance costs 5 (0.7) (0.6)
---------- ----------
Profit before tax 7.9 7.1
Income tax 6 (3.5) (2.6)
Profit for the year 4.4 4.5
Attributable to:
Equity holders of the parent 4.8 4.4
Non-controlling interest (0.4) 0.1
---------- ----------
4.4 4.5
* Adjusted operating profit is stated before exceptional items, gain or loss on business
disposal, intangible amortisation and fair value on acquisition of non-controlling shares.
Earnings per share (from continuing operations):
Earnings per share (pence):
Basic 9.6 9.6
Diluted 8 9.3 9.3
Earnings per share (adjusted) (pence):
Basic 11.7 10.2
Diluted 8 11.3 9.9
Consolidated statement of comprehensive income
2016 2015
GBPm GBPm
Items that may be reclassified subsequently to income statement:
Exchange differences on translation of foreign operations 5.1 (0.5)
Items that will not be reclassified to income statement:
Exchange differences on translation of foreign operations of non-controlling interest 0.5 (0.2)
----- ------
Net income/(expense) recognised directly in equity 5.6 (0.7)
Profit for the year 4.4 4.5
----- ------
Total comprehensive income for the year 10.0 3.8
Attributable to:
Equity holders of the parent 9.9 3.9
Non-controlling interest 0.1 (0.1)
----- ------
10.0 3.8
Consolidated balance sheet
2016 2015
Note GBPm GBPm
ASSETS
Non-current assets
Property, plant and
equipment 1.6 1.5
Goodwill 9 36.0 25.2
Other intangible assets 20.8 7.3
Deferred tax assets 1.0 0.9
59.4 34.9
Current assets
Trade and other receivables 11 50.2 35.9
Cash and cash equivalents 18.0 7.7
------ ------
68.2 43.6
------ ------
Total assets 127.6 78.5
LIABILITIES
Current liabilities
Trade and other payables 12 44.9 24.0
Current tax liabilities 3.1 3.7
Borrowings 10 13.4 9.9
61.4 37.6
Non-current liabilities
Borrowings 10 15.1 5.1
Other creditors - 1.0
Deferred tax liabilities 4.4 1.1
------ ------
Total non-current liabilities 19.5 7.2
------ ------
Total liabilities 80.9 44.8
------ ------
Net assets 46.7 33.7
EQUITY
Share capital 2.4 2.4
Share premium account 22.4 22.4
Merger reserve 0.9 0.9
Retranslation reserve 6.1 1.0
Equity reserve (7.3) (7.2)
Other reserves (0.4) (0.6)
Retained earnings 16.2 11.9
------ ------
Equity attributable
to owners of the Company 40.3 30.8
Non-controlling interest 6.4 2.9
------ ------
Total equity 46.7 33.7
Consolidated statement of changes in equity
Share
Share premium Merger Retranslation Equity Other Retained Non-controlling Total
capital account reserve reserve reserve reserves earnings interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at
31 December
2014 2.2 19.4 0.9 1.8 (7.1) (1.1) 7.8 3.2 27.1
Profit for
the year - - - - - - 4.4 0.1 4.5
Dividend - - - - - - (0.3) - (0.3)
Shares issued 0.2 3.1 - - - - - - 3.3
Expenses
of issue
of equity
shares - (0.1) - - - - - - (0.1)
Currency
translation
differences - - - (0.8) - 0.3 - (0.2) (0.7)
Non-controlling
interest
acquired
and other
movements
during the
year - - - - (0.1) - - (0.2) (0.3)
Share based
payment - - - - - 0.2 - - 0.2
Balance at
31 December
2015 2.4 22.4 0.9 1.0 (7.2) (0.6) 11.9 2.9 33.7
Profit for
the year - - - - - - 4.8 (0.4) 4.4
Dividend - - - - - - (0.5) - (0.5)
Currency
translation
differences - - - 5.1 - - - 0.5 5.6
Share of
non-controlling
interest
in intangibles
related
balances
on business
acquisition - - - - - - - 2.6 2.6
Share of
non-controlling
interest
in other
net assets
on business
acquisition - - - - - - - 1.0 1.0
Non-controlling
interest
acquired
and other
movements
during the
year - - - - (0.1) - - (0.2) (0.3)
Share based
payment - - - - - 0.2 - - 0.2
Balance at
31 December
2016 2.4 22.4 0.9 6.1 (7.3) (0.4) 16.2 6.4 46.7
Equity comprises the following:
-- "Share capital" represents the nominal value of equity shares.
-- "Share premium account" represents the excess over nominal
value of the fair value of consideration received for equity
shares, net of expenses of the share issue.
-- "Merger reserve" relates to premiums arising on shares issued
subject to the provisions of section 612 "Merger relief" of the
Companies Act 2006.
-- "Retranslation reserve" represents the exchange differences
arising from the translation of the financial statements of foreign
subsidiaries.
-- "Equity reserve" represents movement in equity due to
acquisition of non-controlling interests under IFRS 3 Business
combinations.
-- "Other reserves" represents the share based payment reserve
of GBP0.8m (2015: GBP0.6m) and exchange differences on intercompany
long-term receivables amounting to (GBP1.2m) (2015: (GBP1.2m))
which are treated as a net investment in foreign operations.
-- "Retained earnings" represents accumulated profits less
distributions and income/expense recognised in equity from
incorporation.
-- "Non-controlling interest" represents equity in a subsidiary
not attributable, directly or indirectly, to the group.
Consolidated cash flow statement
2016 2015
GBPm GBPm
Profit for the year 4.4 4.5
Adjustments for:
Depreciation and software amortisation 0.9 0.7
Intangible amortisation (identified
as per IFRS 3 'Business combinations') 1.1 0.4
Taxation expense recognised in income
statement 3.5 2.6
Exceptional items - -
Cash paid for exceptional items - (0.5)
Share based payments 0.2 0.2
Net finance charge 0.6 0.5
------- ------
10.7 8.4
Increase/(decrease) in invoice discounting 0.8 (1.2)
Increase in trade receivables (1.2) (1.1)
Increase in trade payables 1.6 1.5
Cash generated from operations 11.9 7.6
Interest paid (0.8) (0.5)
Income taxes paid (4.7) (1.8)
Net cash from operating activities 6.4 5.3
Cash flows from investing activities
Cash acquired with business acquisitions 7.9 0.1
Overdraft acquired with business - (0.7)
Consideration paid for business acquisitions (14.3) (5.3)
Consideration received for business
disposals 0.1 0.1
Purchase of property, plant and equipment
and software (0.8) (0.9)
Finance income 0.1 0.1
Net cash used in investing activities (7.0) (6.6)
Cash flows from financing activities
Proceeds from issue of share capital - 3.2
Further shares acquired in existing
subsidiaries (0.2) (0.4)
Increase/(decrease) in borrowings 0.1 (0.1)
Proceeds from bank loan 11.3 5.3
Repayment of bank and other loan (1.2) (6.2)
Dividends paid to shareholders (0.5) (0.3)
Dividends paid to non-controlling interest
in subsidiaries (0.2) (0.1)
Net cash from financing activities 9.3 1.4
Net increase in cash and cash equivalents 8.7 0.1
Effect of foreign exchange rate changes 1.6 (0.2)
Cash and cash equivalents at beginning
of the year 7.7 7.8
Cash and cash equivalents at end of
the year 18.0 7.7
1 Basis of preparation and general information
The financial information has been abridged from the audited
financial information for the year ended 31 December 2016.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2016
or 2015, but is derived from those accounts. Statutory accounts for
2015 have been delivered to the Registrar of Companies and those
for 2016 will be delivered following the Company's Annual General
Meeting. The Auditors have reported on those accounts; their
reports were unqualified, did not draw attention to any matters by
way of emphasis without qualifying their reports and did not
contain statements under s498(2) or (3) Companies Act 2006 or
equivalent preceding legislation.
Accounting policies have been consistently applied throughout
2015 and 2016.
Whilst the financial information included in this preliminary
announcement has been prepared in accordance with the recognition
and measurement criteria of International Financial Reporting
Standards ('IFRS'), this announcement does not itself contain
sufficient financial information to comply with IFRS. The Group
will be publishing full financial statements that comply with IFRS
in April 2017.
2 Segment analysis
Information reported to the Group's Chief Executive who is
considered to be Chief operating decision maker of the Group for
the purpose of resource allocation and assessment of segment
performance is based on geographic region. The Group's business is
segmented into four regions, UK, Continental Europe, Asia Pacific
and the Americas.
The Group has one principal activity, the provision of staffing
and recruitment services. Each unit is managed separately with
local management responsible for implementing local strategy.
The analysis of the Group's business by geographical origin is
set out below:
Year ended 31 December Continental Asia
2016 UK Europe Pacific Americas Total
GBPm GBPm GBPm GBPm GBPm
Revenue 70.1 92.0 77.3 31.0 270.4
Net fee income 19.0 16.8 18.6 4.6 59.0
Adjusted operating
profit* 1.5 4.9 2.7 0.7 9.8
Operating profit 1.3 4.7 1.7 0.8 8.5
* Adjusted operating profit is stated before exceptional items,
gain or loss on business disposal, intangible amortisation and fair
value on acquisition of non-controlling shares.
Revenue of Continental Europe includes GBP78.2 million (2015:
GBP71.4 million) from Germany and revenue of Asia Pacific includes
GBP43.3 million (2015: Nil) from New Zealand.
Following the investments made in Rishworth Aviation and ConSol
Partners, the segmentation of the Group's revenue and gross profit
by geographic region and destination was different during the year
ended 31 December 2016.
The analysis of the Group's revenue and gross profit by client
destination is set out below:
Year ended 31 December Continental Asia
2016 UK Europe Pacific Americas Total
GBPm GBPm GBPm GBPm GBPm
Revenue 81.8 100.5 54.5 33.6 270.4
Net fee income 19.5 18.3 15.3 5.9 59.0
During the year ended 31 December 2015 there is no material
difference between the segmentation of the Group's revenue and
gross profit by geographic origin and destination. The analysis of
the Group's business by geographic origin is set out below:
Year ended 31 December Continental Asia
2015 UK Europe Pacific Americas Total
GBPm GBPm GBPm GBPm GBPm
Revenue 62.7 75.2 29.2 20.2 187.3
Net fee income 18.4 14.5 14.2 2.1 49.2
Adjusted operating
profit* 2.2 3.9 1.6 0.3 8.0
Operating profit 2.1 3.7 1.6 0.2 7.6
* Adjusted operating profit is stated before
exceptional items, gain or loss on business disposal,
intangible amortisation and fair value on acquisition
of non-controlling shares.
The following segmental analysis by sector has
been included as additional disclosure to the
requirements of IFRS 8.
Net Net
fee fee
Revenue Revenue income income
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
Professional
services 12.8 12.9 5.8 6.2
IT, digital
& design 34.4 25.7 11.9 9.2
Technical &
industrial 127.4 109.4 22.9 21.5
Retail 28.9 23.9 3.9 3.3
Healthcare 12.5 6.1 3.4 1.7
Executive search 4.1 3.2 3.9 3.1
Aviation 43.3 - 2.5 -
Other services 7.0 6.1 4.7 4.2
270.4 187.3 59.0 49.2
--------------------- --------- --------- --------- --------
3 Business investment
On 5 July 2016 the Group purchased an 82.6% interest in
Rishworth Aviation Limited and its sister companies (together
"Rishworth") for a total cash consideration of GBP7.5 million.
Headquartered in Auckland, New Zealand, with a regional office in
Stockholm, Sweden, Rishworth is a leading independent staffing
company supplying pilots to the aviation industry. Rishworth
provides staffing services to clients across the globe, with a
significant presence across the UK, Continental Europe, Asia
Pacific and Africa.
On 5 October 2016 the Group purchased 65% of the shares in
ConSol Partners (Holdings) Limited ("ConSol"), a specialist
recruitment group in the IT sector with a focus on the niche
sectors of communications and mobile, cloud technologies and the
digital supply chain, operating in the United Kingdom, the United
States and Continental Europe. Total consideration for the
acquisition is GBP9.5 million with GBP3.9 million paid on
completion and GBP5.6 million payable during the first quarter of
2017.
The amounts recognised in respect of both the acquisition for
the purchase consideration, identifiable assets acquired and
liabilities assumed and goodwill are as set out in the table
below:
Rishworth ConSol
Avitation Partners
GBPm GBPm
Purchases consideration
recognised
Cash consideration
paid 7.5 3.9
Deferred consideration accrued - 5.6
----------- ----------
Total purchase consideration 7.5 9.5
Intangible recognised on acquisition (as
per IFRS 3 'Business combination') (1)
Identifiable intangibles: Customer
relations and candidate database 4.9 2.5
Identifiable intangibles: Trade
names 1.8 4.0
----------- ----------
6.7 6.5
Deferred tax liability on intangibles (1.9) (1.3)
----------- ----------
4.8 5.2
Acquiree's book value of net assets acquired
(1)
Property plant and
equipment - 0.1
Trade and other receivables 2.7 5.7
Cash at bank 7.1 0.8
Invoice financing - (1.2)
Trade and other payables (5.3) (2.5)
Pilot bonds (4.1) -
Client deposits (0.9) -
Deferred tax 0.1 -
----------- ----------
(0.4) 2.9
Non-controlling interests
in businesses
Non-controlling interests
in net assets - (1.0)
Non-controlling interests
in intangibles (0.8) (1.8)
----------- ----------
(0.8) (2.8)
Goodwill 3.9 4.2
Net assets 7.5 9.5
=========== ==========
(1) The above table represents fair value on date of investment.
Rishworth Aviation
Acquisition related costs amounting to GBP0.1 million are not
included above and have been recognised in the income
statement.
The goodwill comprises the value of its employees and their
close understanding of their client's requirements which are of
great importance in the recruitment business. The subsidiaries of
Rishworth are run as one operating unit and represent a single cash
generating unit for goodwill allocation.
Goodwill and intangibles are not deductible for tax
purposes.
There are no post-combination employee services identified from
this acquisition.
The investment has contributed GBP43.3 million to the Group's
revenue and GBP0.4 million to profits attributed to equity holders
of the parent. This includes intangible amortisation impact of
GBP0.1 million to profits attributable to the equity holders of the
parent. It has contributed GBP1.8 million to the Group's operating
cash flow since acquisition for the period ended 31 December
2016.
If the investment had been completed on 1 January 2016 the Group
would have generated additional revenues of GBP46.3 million for the
period to 31 December 2016. The profit attributed to equity holders
of the parent for the period would have been an additional GBP0.3
million. This includes intangible amortisation impact of GBP0.2
million to profits attributed to equity holders of the parent.
ConSol Partners
Acquisition related costs amounting to GBP0.2 million are not
included above and have been recognised in the income
statement.
The goodwill comprises the value of its employees and their
close understanding of their client's requirements which are of
great importance in the recruitment business. The subsidiaries of
ConSol Partners are run as one operating unit and represent a
single cash generating unit for goodwill allocation.
Goodwill and intangibles are not deductible for tax
purposes.
There are no post-combination employee services identified from
this acquisition.
The investment has contributed GBP6.7 million to the Group's
revenue and GBPnil to profits attributed to equity holders of the
parent. This includes intangible amortisation impact of GBP0.1
million to profits attributable to the equity holders of the
parent. It has contributed GBP0.5 million to the Group's operating
cash flow since acquisition for the period ended 31 December
2016.
If the investment had been completed on 1 January 2016 the Group
would have generated additional revenues of GBP19.7 million for the
period to 31 December 2016. The profit attributed to equity holders
of the parent for the period would have been an additional GBP0.6
million. This includes intangible amortisation impact of GBP0.2
million to profits attributed to equity holders of the parent.
Deferred consideration
An amount of GBP5.6 million deferred consideration is payable
during the first quarter of 2017 and has been accrued at 31
December 2016. This includes GBP1.4 million payable based upon the
net assets at completion.
4 Exceptional items and fair value on acquisition of non-controlling shares
Exceptional items are those which, in management's judgement,
need to be disclosed separately by virtue of their size or
incidence in order for the reader to obtain a proper understanding
of the financial information.
2016 2015
GBPm GBPm
Impairment of goodwill 0.5 -
Impairment of intangibles 0.1 -
Contingent consideration (0.6) -
- -
Fair value on acquisition of non-controlling shares
2016 2015
GBPm GBPm
Fair value on acquisition of non-controlling
shares 0.2 -
0.2 -
During the year we increased our shareholding in Monroe
Consulting (Executive search in Thailand) by 10%, taking our
interest up to 70%. The consideration of GBP0.2 million was paid in
cash. In line with accounting rules, where certain restrictions are
in place for the management shares, the value of the consideration
can be excess of fair value under IFRS 13, and as such a GBP0.2
million fair value charge has been recognised in the income
statement.
5 Finance income and cost
2016 2015
GBPm GBPm
Finance income
Bank interest receivable 0.1 0.1
0.1 0.1
Finance cost
On amounts payable to invoice discounters (0.2) (0.2)
Bank loans and overdrafts (0.4) (0.3)
Interest on tax payments (0.1) (0.1)
(0.7) (0.6)
Net finance cost (0.6) (0.5)
6 Taxation
2016 2015
GBPm GBPm
Current taxation
Current tax (3.3) (2.8)
Adjustment to tax charge in respect
of previous periods (0.1) 0.1
(3.4) (2.7)
Deferred tax - current year (0.1) 0.1
Total income tax expense in the income
statement (3.5) (2.6)
7 Reconciliation of Adjusted profit before tax to Profit before tax
2016 2015
GBPm GBPm
Profit before tax 7.9 7.1
Amortisation of intangibles 1.1 0.4
Exceptional items - -
Fair value on acquisition of non-controlling
shares 0.2 -
Adjusted profit before tax 9.2 7.5
8 Earnings per share
The calculation of the basic earnings per share is based on the
earnings attributable to ordinary shareholders divided by the
average number of shares in issue during the year. A reconciliation
of the earnings and weighted average number of shares used in the
calculations are set out below.
The calculation of the basic and diluted earnings per share is
based on the following data:
2016 2015
GBPm GBPm
Earnings
Earnings attributable to equity holders
of the parent 4.8 4.4
Adjustments :
Exceptional items - -
Fair value on acquisition of non-controlling
shares 0.2 -
Intangible amortisation 1.1 0.4
Tax on intangible amortisation (0.2) -
Earnings for the purpose of adjusted
earnings per share 5.9 4.8
Number of shares Millions Millions
Weighted average number of shares -
basic 50.2 46.4
Dilution effect of share options 1.7 1.5
Weighted average number of shares -
diluted 51.9 47.9
Earnings per share Pence Pence
Diluted earnings per share 9.3 9.3
Adjusted earnings per share (diluted) 11.3 9.9
The dilution on the number of shares is from share options
granted to the executive directors.
9 Goodwill
2016 2015
GBPm GBPm
At 1 January 25.2 23.7
Acquisition of new subsidiary undertakings 8.1 2.2
Impairment (0.5) -
Foreign exchange 3.2 (0.7)
------ ------
At 31 December 36.0 25.2
Goodwill arising on business combinations is reviewed and tested
for impairment on an annual basis or more frequently if there is
indication that goodwill might be impaired. Goodwill has been
tested for impairment by comparing the carrying amount of each
cash-generating unit (CGU) at lowest level of cash flow, including
goodwill, with the recoverable amount of that income-generating
unit. The recoverable amounts of the CGUs are determined from
value-in-use calculations.
The key assumptions for the value-in-use calculations are as
follows:
Operating profit & pre-tax cash flows
The operating profit & pre-tax cash flow is based on the
latest one-year forecasts for the CGUs approved by the Group's
Management Board which are compiled using expectations of fee
growth, consultant productivity and operating costs. The Group
prepares cash flow forecasts derived from the most recent financial
forecasts approved by management and extrapolates cash flows in
perpetuity based on the long-term growth rates using margins that
are consistent with the business plan approved by the Group's
Management Board.
Discount rates
The pre-tax, country specific rate used to discount the forecast
cash flows ranges from 10% to 20% (2015: 13% to 21%) reflecting
current local market assessments of the time value of money and the
risks specific to the relevant CGUs. These discount rates reflect
estimated industry weighted average cost of capital in each
market.
Pre-tax discount rates used for various cash generating units in
operating segments are as follows:
UK: 10%
Continental Europe:
10%
Asia Pacific: 11.5%
to 20%
Americas: 11% to
17%
Growth rates
Growth rates used to extrapolate beyond the most recent
forecasts and to determine terminal values are based upon the long
term average GDP growth forecast, which are consistent with
external sources, for the relevant country. Growth rates range from
1.8% to 7.9%. Any growth rate in excess of 3.0% was capped for the
purpose of this calculation. GDP growth is a key driver of our
business, and is therefore a key consideration in developing
long-term forecasts.
Growth rates used for various cash generating units in operating
segments are as follows:
UK: 1.8%
Continental Europe:
1.3% to 1.5%
Asia Pacific: 0.7% to
3.0% (capped)
Americas: 3.0%
Impairment reviews were performed at the year-end by comparing
the carrying value of goodwill with the recoverable amount of the
CGUs to which goodwill has been allocated. An impairment charge of
GBP0.5 million related to Asia Pacific region has been provided at
31 December 2016.
As part of the impairment review, management has considered the
sensitivity of the recoverable amount for each unit to changes in
the growth rates and discount rate. This sensitivity analysis
showed that the long-term growth rate could reduce to nil without
giving rise to any additional impairment of goodwill. The discount
rates were also increased by adding an additional 3% to the in
country specific pre-tax discount rates. None of these changes in
the key assumptions are expected to reasonably occur.
Goodwill acquired in a business combination is allocated, at
acquisition, to the groups of CGUs that are expected to benefit
from that business combination. The carrying amount of goodwill has
been allocated as follows:
2016 2015
GBPm GBPm
Goodwill by region
UK 11.9 7.7
Continental Europe 14.0 12.0
Asia Pacific 6.6 2.7
Americas 3.5 2.8
----- -----
36.0 25.2
10 Borrowings
2016 2015
GBPm GBPm
Current
Bank overdrafts 2.8 2.3
Amounts related to invoice
financing 8.9 6.9
Current portion of bank loans 1.7 0.7
13.4 9.9
Non-current
Bank loans 15.1 5.1
----- -----
15.1 5.1
----- -----
Total financial liabilities 28.5 15.0
During the year a new five year UK multi-currency revolving
credit facility of GBP10.0 million was entered into expiring in
June 2021. This facility has part-funded the investments in
Rishworth Aviation and ConSol Partners. As at 31 December 2016 the
balance outstanding was GBP8.5 million. Interest is payable at 1.5%
plus LIBOR or EURIBOR.
At 31 December 2016 the UK term loan, expiring in 2018, had a
balance of GBP3.5 million (2015: GBP1.6 million). Further drawdowns
from this term loan of GBP2.9 million were made during the year to
part fund the investment in Rishworth Aviation and also fund the
contingent consideration payment due for Pharmaceutical Strategies.
GBP1.0 million of this loan was repaid during the year and GBP1.5
million is expected to be repaid during the year ended 31 December
2017. Interest is payable at 1.5% above UK base rate. A German bank
loan of EUR5.0 million (2015: EUR5.0 million) remains outstanding
with an expiry in 2018. Interest is payable at EURIBOR plus 3%.
Overdraft facilities are in place in the UK with a limit of
GBP5.0 million (2015: GBP5.5 million). The balance at 31 December
2016 was GBP0.9 million (2015: GBPnil). The interest rate was fixed
during the year at 1.0% above applicable currency base rates. A
$1.5 million overdraft facility to provide working capital funding
to Pharmaceutical Strategies had a balance of $0.7 million (2015:
$1.1 million) as at 31 December 2016. Interest on this USD facility
is payable at 2% over currency base rates. An EUR8.0 million
overdraft facility is also in place in Germany. The balance at 31
December 2016 was EUR1.2 million (2015: EUR2.2 million). Interest
is payable at EURIBOR plus 2.3%.
The UK facilities are secured by a first fixed charge over all
book and other debts given by the Company and certain of its UK
subsidiaries, Headway in Germany and Rishworth Aviation in New
Zealand.
Other overseas overdrafts and loans had interest rates of
between 1.6% and 2.3%.
Movement in net borrowings 2016 2015
GBPm GBPm
As at 1 January (7.3) (9.8)
Net increase in cash and cash
equivalents before cash/overdraft
acquired with business acquisition 0.8 0.7
Net cash/(overdraft) acquired
with business acquisition 7.9 (0.6)
Amounts related to invoice
financing acquired with business
acquisition (1.2) -
(Increase)/decrease in loans (10.2) 1.0
(Increase)/decrease in invoice
financing (0.8) 1.2
Currency translation differences 0.3 0.2
------- ------
As at 31 December (10.5) (7.3)
Analysis of net borrowings 2016 2015
GBPm GBPm
Financial liabilities - borrowings (28.5) (15.0)
Cash and cash equivalents 18.0 7.7
------- -------
As at 31 December (10.5) (7.3)
Cash and cash equivalents at 31 December 2016 include cash with
banks of GBP329,000 (2015: GBP43,000) held by a subsidiary in China
which is subject to currency exchange restrictions.
The cash and cash equivalents above includes GBP5.2 million
(2015: GBPNil) of pilot bonds held by Rishworth Aviation. See note
12 for more details.
11 Trade and other receivables
2016 2015
GBPm GBPm
Trade receivables 42.1 32.2
Less provision for impairment
of trade receivables (1.0) (0.4)
------ ------
Net trade receivables 41.1 31.8
Prepayments 2.0 1.2
Accrued income 2.5 0.6
Deferred and contingent
consideration 0.3 0.3
Other receivables 4.3 2.0
------ ------
50.2 35.9
12 Trade and other payables
2016 2015
GBPm GBPm
Current
Trade payables 1.5 0.9
Other tax and social security 8.8 5.7
Pilot bonds 5.2 -
Client deposits 0.8 -
Temporary recruitment
worker wages and social
securities 4.3 3.3
Other payables 1.5 0.3
Accruals 17.2 11.0
Deferred and contingent
consideration 5.6 2.8
------ ------
44.9 24.0
Non-current
Contingent consideration - 0.5
Other payables - 0.5
------
- 1.0
The pilot bonds represent unrestricted funds held by Rishworth
Aviation that are repayable to the pilot over the course of the
contract, which typically last between three and five years. If the
pilot terminates their contract early, the outstanding bond is
payable to the client. For this reason the full bond value is shown
as a current liability. If the bonds are repaid in line with
existing contracts, GBP3.3 million would be repayable in more than
one year.
13 Dividends
2016 2015
GBP000 GBP000
Amount recognised as distribution to equity holders in the year:
Final dividend for the year ended 31 December 2015 of 1.0 pence (2014: 0.70 pence) per share 490 312
Proposed final dividend for the year ended 31 December 2016 is 1.15 pence (2015: 1.0 pence)
per share 564 490
The proposed dividend is subject to approval by shareholders at
the Annual General Meeting and has not been included as a liability
in these financial statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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