TIDMEMR
RNS Number : 6287H
Empresaria Group PLC
14 March 2018
14 March 2018
Empresaria Group plc
("Empresaria" or the "Group")
Results for the year ended 31 December 2017
Record adjusted profit before tax and adjusted earnings per
share
Empresaria, the international specialist staffing group, has
continued to deliver on its strategy with record adjusted profit
before tax and growth in adjusted diluted earnings per share.
% change
(constant
Financial Highlights 2017 2016 % change currency)
---------------------- ---------- ---------- ----------- ------------
Revenue GBP357.1m GBP270.4m 32% 28%
Net fee income GBP69.4m GBP59.0m 18% 13%
Operating profit GBP8.7m GBP8.5m 2% (3%)
Adjusted operating
profit* GBP11.6m GBP9.8m 18% 13%
Profit before tax GBP8.1m GBP7.9m 3% (2%)
Adjusted profit
before tax* GBP11.0m GBP9.2m 20% 14%
Earnings per share
(diluted) 7.9p 9.3p (15%)
Adjusted diluted
earnings per share* 12.5p 11.3p 11%
Final dividend 1.32p 1.15p 15%
-- Eighteen consecutive quarters of net fee income growth
-- Six consecutive years of double digit % growth in adjusted earnings per share
-- Conversion ratio increased to 16.7% (2016: 16.6%)
-- Proposed final dividend increased by 15% to 1.32p (2016: 1.15p)
-- Net debt increased to GBP12.0m (2016: GBP10.5m) in line with
expectations following deferred consideration paid in the
period
-- Strong profit growth in Japan, Chile and parts of the UK business
-- Successful integration of Rishworth Aviation and ConSol Partners
-- Strong platform in place for next phase of growth
* 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:
"We are pleased to be reporting another year of record results,
with this period being the sixth year of double digit adjusted
diluted earnings per share growth. The strength of the business has
again allowed us to increase our annual dividend in line with our
progressive dividend policy.
Our diversification by geography and sector places the Group in
a strong position to withstand localised market issues. The Group
remains focused on delivering our strategy: strengthening a
multi-branded group, with a focus on developing leading brands that
are diversified and balanced by geography and sector.
The Group has a strong platform in place from which to launch
the next phase of its growth and we see good opportunities to
support the profitable growth of our brands in the year ahead."
- Ends -
Enquiries:
Empresaria Group plc via Alma
Joost Kreulen, Chief Executive
Officer
Spencer Wreford, Group Finance
Director & Chief Operating Officer
Arden Partners (Nominated Adviser
and Broker)
John Llewellyn-Lloyd / Steve
Douglas / Ciaran Walsh 020 7614 5900
Alma PR (Financial PR) 020 8004 4217
Hilary Buchanan empresaria@almapr.com
Notes for editors:
-- Empresaria Group plc is an international specialist staffing
group with 18 brands operating in 20 countries across the globe
including the UK, Germany, Japan, India, UAE, Indonesia, Chile,
Australia, Thailand, Singapore, Finland, USA, New Zealand, China,
Malaysia, Vietnam 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
The Group has delivered another record year of profit. Our
business model and strategy is delivering consistently, with 18
quarters of net fee income growth over the prior year period to the
end of 2017. As well as the growth in profit, our diversification
across sectors and geographies helps to reduce risk and insulate
the Group from difficulties in individual markets.
Empresaria is a global business, operating from locations in 20
countries. Whilst global reach is clearly important, local focus is
key with our management teams running their businesses in alignment
with local market conditions and opportunities.
As part of our strategy to develop leading brands, we invest to
help them develop and take a leading position within their niche
sector area of expertise. It is important that each brand has the
potential to develop within the Group and where changes are needed,
we identify and implement them. In line with this ethos, we ended
2017 with 18 brands, having merged two brands and exited from
another. The Board sees good opportunities for growth across the
Group and we will continue to invest in our brands to build
capacity and coverage.
The market
As we enter 2018 the worldwide economic conditions are largely
positive, with synchronised growth forecast for the first time
since the global financial crisis. The main markets that we operate
in are expected to grow, and this includes the UK where we continue
to operate under a cloud of Brexit uncertainty. We are seeing
candidate shortages across our markets and regions. We play a vital
role in helping client companies find the right resources they need
to grow.
The positive economic outlook suggests a good year ahead for the
staffing sector, with "Staffing Industry Analysts" forecasting 6%
growth in the global staffing sector in 2018. Against this is
ongoing geo-political uncertainty, which could derail growth in any
territory, as well as the impact of new legislation in our markets,
with particular changes in Germany and Japan impacting the
temporary staffing markets in 2018. Our diversity puts us in a good
position to both manage the impact of localised issues and make the
most of positive market conditions.
People, values & culture
The Board has over 100 years of combined experience in the
staffing industry and during the year we took steps to strengthen
the board with Spencer Wreford taking on the role of Chief
Operating Officer. We look forward to welcoming Tim Anderson to the
board as Group Finance Director by the end of March 2018.
As we have continued to invest in our brands, the average number
of staff across the Group in the year has increased to 1,367 (2016:
1,282). The success of the Group is down to the hard work of every
one of them and the Board would like to thank each individual for
their contribution to our success.
A key part of our business model, and one that aligns key
operating company management and Empresaria shareholder interests,
is subsidiary management equity, where management hold shares in
their operating companies. This approach helps Empresaria to
attract and retain the best people. At the end of the year we had
51 management shareholders owning shares in the operating companies
they are responsible for.
It is important for businesses to have a clear vision to help
frame all decision making and identify priorities for investment.
We operate in a people business and our purpose is to help people
to achieve their potential, whether this is our internal staff who
can develop meaningful careers within the Group, our candidates who
we help to find work, or our clients who we help to identify the
best candidates.
We operate with a decentralised structure, with local management
responsible for running their businesses but clear governance and
control oversight from the centre. We believe in a strong and clear
governance approach and expect high standards and compliance across
the Group. Our culture is based on shared ownership and reward. We
are a Group of like-minded people with a passion for helping people
realise their potential.
We take stakeholder engagement seriously. We have regular
communication with Group companies and staff through our
newsletters, we present to investors to explain our strategy and
results, both to institutional investors and private shareholders
and we engage with regulators and Government agencies both directly
in response to consultations or proposals and through our
membership of worldwide trade associations.
Shareholder returns
The Group has delivered six consecutive years of double-digit
growth in adjusted diluted earnings per share as we look to build a
sustainable business for the long-term benefit of shareholders and
other key stakeholders. The adjusted measures exclude amortisation,
exceptional items, profit or loss on business disposals and fair
value charges on equity instruments. We use the adjusted measures
as we believe they reflect the underlying trading results and are
measures typically used by investors and the analyst community.
The Board has reviewed the dividend and in line with our
progressive dividend policy, for the year ended 31 December 2017,
we propose an increase of 15% to 1.32p per share (2016: 1.15p per
share) to be approved by shareholders at the Annual General
Meeting. The dividend will be paid on 31 May 2018 to shareholders
on the register on 4 May 2018.
At the end of the year we initiated a small share buy-back
programme, which concluded in January 2018 with the total purchase
of 260,384 shares at a cost of GBP249,445. These shares are held in
an Employee Benefit Trust to cover potential exercises of vested
share options thus reducing the dilutive effect of issuing new
shares. Based on the number of vested options and the share price
at the time, this was a sensible use of capital for the benefit of
all shareholders.
Outlook
The Group has a strong platform from which to deliver the next
phase of growth. The economic conditions are positive and whilst we
maintain a cautious view on political risk, we see good
opportunities to develop our Group further during the year ahead.
We have a proven strategy and brands that have the potential to
grow their profit.
Tony Martin
Chairman
13 March 2018
Chief Executive's Review
Group performance in the year
We are pleased to have delivered another record year of profit,
further demonstrating that our strategy of being diversified by
sector and geography is working, with adjusted profit before tax
growing 20% to GBP11.0m (2016: GBP9.2m). The 2017 results include a
full year of contribution from the investments made in 2016 in
Rishworth Aviation and ConSol Partners.
Trading summary % change % change
constant
GBPm 2017 2016 currency**
-------------------- ------ ------ --------- ------------
Revenue 357.1 270.4 32% 28%
-------------------- ------ ------ --------- ------------
Net fee income 69.4 59.0 18% 13%
-------------------- ------ ------ --------- ------------
Operating profit 8.7 8.5 2% (3%)
-------------------- ------ ------ --------- ------------
Adjusted operating
profit* 11.6 9.8 18% 13%
-------------------- ------ ------ --------- ------------
Profit before
tax 8.1 7.9 3% (2%)
-------------------- ------ ------ --------- ------------
Adjusted profit
before tax* 11.0 9.2 20% 14%
-------------------- ------ ------ --------- ------------
* 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. See note
6 for a reconciliation between profit before tax and adjusted
profit before tax.
** The constant currency movement is calculated by translating
the 2016 results at the 2017 exchange rates
Group revenue increased by 32% to GBP357.1m (2016: GBP270.4m),
with net fee income up 18% to GBP69.4m (2016: GBP59.0m). Our
strongest results were in Japan (IT & design sector), Chile
(retail sector) and in the professional services and other
specialist sectors of the UK. Permanent revenue was up 14% and
temporary and contract revenue was up 34%.
The two investments made in 2016 have integrated well into the
Group. Rishworth Aviation has performed in line with our
expectations. The decision was taken to incur professional fees to
support the set-up of new bases of operations for key clients,
which are already generating profitable returns and further
consolidate their position as a key business partner. Our
investment in ConSol has also been positive, with the UK office
trading well and expanding their operations in Continental Europe.
We have invested in the US office, bringing in more experienced
staff and increasing their focus on temporary sales. There has been
a positive contribution in the second half of the year from these
changes and we see a good momentum moving into 2018.
We have continued to invest in our Group, with Monroe Consulting
launching in Vietnam, a new country for the Group. This operation
has started well and complements their existing footprint across
South East Asia. The Group has also seen average staff numbers
increase by 7% as we continue to invest in line with our leading
brands strategy. In the UK, two brands were merged into FastTrack
(technical & industrial) and LMA (professional services), which
are expected to provide both operational and cost synergies in the
coming years.
With a Group operating in 20 countries and across various
sectors, it is unrealistic to expect all brands to be performing at
their peak at the same time. Our organic performance in the year
has been impacted by weaker performances, primarily within the
technical & industrial sector, and actions have been taken to
make changes where required. At the net fee income level, the
growth was driven by the investments made in 2016, with organic
growth of 1%, although once currency benefits are removed, the
constant currency organic net fees decreased by 3%. Germany and the
Middle East were our weaker markets in the period. We saw a
reduction in net fee income in Germany following the introduction
of new legislation to limit the amount of time a worker can be
treated as a temporary worker at the same client to 18 months as
well as new minimum wage rules. We have been proactive in managing
this position with worker rotations but this has resulted in lower
temporary margins and a subsequent decline in profit. In the Middle
East we have incurred restructuring costs in the year, bringing the
cost base in line with current trading and whilst loss making, it
was an improvement on the prior year and we saw a positive trend
across the second half. In the UK a mixture of changes within the
sales team and merger costs have put pressure on the results. As
part of a mid-term growth plan, we will be investing further. The
fact that we were able to deliver a record result in 2017, despite
difficulties in certain markets, underlines the benefit of our
strategy to be diversified across sectors and geographies and so
not being reliant on any single market.
The Group temporary margin was 12.7% (2016: 14.5%) with the
reduction mainly due to the full year impact of Rishworth Aviation,
which has a high revenue and relatively low gross margin
percentage, and the lower margins in Germany. The mix of net fee
income was consistent with the prior year, with 60% from temporary
and contract sales and 40% from permanent sales. The share of net
fees from professional and specialist levels increased to 87%
(2016: 86%). The Group generated 66% of net fee income from outside
the UK (2016: 68%).
We have seen another improvement in our conversion ratio, albeit
a small increase to 16.7% (2016: 16.6%). This represents six years
of consecutive improvement, although the rate of growth was held
back by costs incurred on exiting property leases in the UK,
non-exceptional restructuring costs and investing in new staff. We
have a clear focus to manage our costs, allowing investment in
building the teams, but always looking for ways to operate more
efficiently, with a particular focus on staff productivity.
Within our English speaking brands we have started to use our
offshore recruitment outsourcing business in India to take over
certain internal accounting processes, to deliver consistency,
build scale and manage costs. Operating profit grew by 2% to
GBP8.9m (2016: GBP8.7m), with higher amortisation costs of GBP1.7m
(2016: GBP1.1m) reflecting the recent investments made by the
Group, as well as a GBP0.9m loss on disposal for exiting the
training business in Indonesia. The adjusted operating profit,
stated before amortisation, exceptional items, profit or loss on
business disposals and fair value charges on equity instruments
grew by 18% to GBP11.6m (2016: GBP9.8m). The disposal was of a
non-core business, which joined the Group in 2007. There was a need
for a significant cash investment to restructure it for growth and
we did not believe it was an ongoing fit with the Group. This was
an accounting loss only and meant we did not need to make any
further cash injections.
Profit before tax was up 3% to GBP8.1m (2016: GBP7.9m), with the
underlying adjusted profit before tax up 20% to GBP11.0m (2016:
GBP9.2m). Interest costs were level year on year, despite the
increase in net debt. We also had a benefit from the weakness in
Sterling on the translation of our overseas results. On a constant
currency basis adjusted profit before tax was up 14% but reported
profit before tax was down 2%. Currency has been beneficial for the
last two years, following the Brexit vote, but based on the
exchange rates at year end we would not expect to see the same
benefit during 2018.
Diluted earnings per share was down 15% to 7.9p (2016: 9.3p),
also impacted by the higher amortisation charges and loss on
disposal. On an adjusted basis there was an 11% growth to 12.5p
(2016: 11.3p), representing the sixth year of double digit
percentage growth.
Five year plan 2014-2018
As we enter 2018 we start the last year of our most recent five
year growth plan. We are pleased with the progress we have made in
all three key measures. We will continue to work on improving the
conversion ratio and all three targets remain ongoing areas of
focus for the Group.
5 year plan Target 2017 2016 2015 2014
2014-2018
------------------ ------- ------ ------ ------ ------
Net fee income
growth 10% 18% 20% 10% 5%
------------------ ------- ------ ------ ------ ------
Conversion ratio 20% 16.7% 16.6% 16.3% 14.7%
------------------ ------- ------ ------ ------ ------
Debt to debtors
ratio 25% 45% 38% 23% 32%
------------------ ------- ------ ------ ------ ------
Over the first four years of our plan we have delivered a 63%
growth in net fee income, with 26% from organic growth (for
businesses in the Group in 2013), 43% from new investments and 6%
lost through divestments. The Board's decision to operate above the
long-term debt to debtors target is explained in the Finance review
below.
Focus into 2018
Organic growth has always been a core part of our business model
and despite the low overall organic growth in the year, this
remains a key focus of management. We agree specific plans with
each brand to help them develop into leading brands in their
sectors and we will continue to invest in new staff, locations and
markets where we see opportunities to grow. We are confident that
the plans we are following will help the Group deliver profitable
organic growth in 2018.
We have not made any external investments during 2017,
concentrating on integrating the three investments we made over a
12 month period from October 2015 to October 2016. It was important
to settle them into the Group before looking for new investment
opportunities. With the main focus on organic growth in 2018, we do
not currently expect to make any significant external investments,
but we will continue to work on identifying suitable opportunities
to further develop the Group in line with our strategy. As part of
balancing our sector and geographic coverage, we have a particular
interest in increasing our presence in the Latin American region
and the healthcare and professional services sectors. We also work
with our brands to identify and execute sector specific bolt-on
acquisition opportunities, to help accelerate their growth
plans.
Regional performance
United Kingdom
GBPm 2017 2016 2015 2014
-------------------- ----- ----- ----- -----
Revenue 86.7 70.1 62.7 65.8
Net fee income 23.4 19.0 18.4 15.9
Adjusted operating
profit 2.2 1.5 2.2 2.2
% of Group net
fee income 34% 32% 37% 35%
Average number
of employees 294 262 224 197
Revenue increased by 24% and net fee income was up 23%, helped
by having a full year of contribution from ConSol Partners.
However, excluding this the underlying movement in net fee income
was a reduction of 2%, due to lower sales within our insurance and
technical & industrial brands. Our UK based brands in technical
& industrial merged at the beginning of 2017 and overall the
integration has run smoothly. The sector has been challenging, with
candidate shortages and delays to key projects and at the same time
the credit community has also been very cautious in this sector and
this is unlikely to improve following recent well publicised
company collapses. We are working closely with the business to help
them make improvements in structure and process to recover their
profit levels including the introduction of an improved training
programme during the year. We plan to invest in adding more staff
in 2018.
In professional services we have seen positive conditions, with
activity levels high throughout the year. We have merged the
insurance brand into LMA, our leading professional services brand,
with effect from January 2018, with resulting cost and operational
synergies. We have not seen any impact on client demand due to
Brexit and staff numbers have increased 10% year on year. The LMA
business has a good track record of adding new service lines and we
are confident they will be able to maximise the opportunities with
a dedicated insurance division.
We were also pleased with the contributions in domestic services
and retail (new house sales), with both growing year on year and
looking to strengthen their regional presence in 2018.
In IT & digital we have strengthened our presence with
ConSol Partners. From their office in London they cover the UK and
Continental Europe markets and they have seen the mix shift more
towards Europe over the course of the year. In the digital &
design sector our two brands have invested in staff and systems,
such that their net contribution has been steady with the prior
year, but we have seen an improving trend over the second half of
the year, in particular with stronger temporary sales, and see good
opportunities to grow into 2018.
Continental Europe
GBPm 2017 2016 2015 2014
-------------------- ----- ----- ----- -----
Revenue 98.8 92.0 75.2 76.8
Net fee income 16.5 16.8 14.5 15.0
Adjusted operating
profit 5.1 4.9 3.9 3.2
% of Group net
fee income 23% 28% 30% 34%
Average number
of employees 125 127 123 132
Revenue grew by 7% but net fee income was down by 2%, with the
temporary margin down 2% in Germany. The adjusted operating profit
of GBP5.1m was up GBP0.2m on 2016, helped by a lower allocation of
central charges due to the lower share of Group net fee income.
The Headway business in Germany and Austria continues to
dominate the region. The Austrian business was positive, with
investments made in staff. The German temporary staffing division
has integrated new sales staff and invested in training and
marketing and is well positioned to benefit from these investments
in 2018. The Logistics division in Germany delivered strong profits
but was negatively impacted by new legislation that was implemented
in April 2017 and the set up costs related to taking on new
clients. The new regulations limit the time a worker can be on a
temporary contract with a client to 18 months, with new equal pay
regulations also introduced. With this division operating at lower
pay brackets, these changes have increased pressure on margins and
projects are being managed to meet client service period
restrictions. We expect there will be a continuing impact into 2018
as clients get used to the new rules. We are confident that the
high quality service we provide in the market will see us well
placed to respond to ongoing client needs into the long-term.
Our Finnish healthcare business has had a solid year. We oversaw
a change in the senior management team during the year and are
investing in marketing initiatives in 2018 to improve candidate
attraction.
Asia Pacific
GBPm 2017 2016 2015 2014
-------------------- ------ ----- ----- -----
Revenue 132.7 77.3 29.2 27.7
Net fee income 22.2 18.6 14.2 12.3
Adjusted operating
profit 3.5 2.7 1.6 1.2
% of Group net
fee income 33% 32% 29% 28%
Average number
of employees 816 795 673 545
Revenue grew by 72% and net fee income grew 19%. This was
largely due to the full year contribution from Rishworth Aviation,
which has a low temporary margin of 6%, so there is a larger impact
on revenue. Excluding this, net fee income was up 3%.
The Rishworth business has performed in line with expectations
and has settled well into the Group, providing a new sector
specialism. A key focus in the year has been on setting up new
pilot bases for their largest client. Whilst this required them to
incur additional professional fees, we expect the costs to reduce
for 2018 and the new bases are already making profitable
contributions.
There were particularly strong performances from Skillhouse in
Japan (IT, digital & design sector) where the positive economic
conditions, combined with an ageing population, has created strong
client demand. Candidates are in short supply and new legislation
takes effect in 2018 which limits the time workers can be on
temporary or outsourced contracts with clients. We have yet to see
how clients will react to these changes.
In South East Asia our executive search brand, Monroe
Consulting, launched in Vietnam and now operate in six countries
across the region. There were good results in Thailand, Malaysia
and Indonesia and investments in staff across all offices. In India
there was good growth in the outsourcing services to the UK, in
particular in the healthcare sector, although their profit growth
was dampened by currency impacts. They invested in additional sales
resources for the key UK and US markets and we see good
opportunities for 2018. We exited our non-core training business in
Indonesia, with a sale to the management team as it would have
required significant cash and time investments to turn it around
and we felt it would be more successful as an independent
company.
In professional services the LMA business in Singapore grew net
fee income and profit. They continue to invest in new staff to
capitalise on their market position.
Following a difficult period, our business in the technical
& industrial sector in the Middle East has been fully
restructured, with a new manager in place, and a cost base in line
with current trading levels. There were additional bad debt write
offs for historic issues and the UK base has been closed down.
There has been an increase in oil price in the second half of the
year, which should help local economic confidence and we expect a
positive contribution in 2018.
Americas
GBPm 2017 2016 2015 2014
-------------------- ----- ----- ----- -----
Revenue 38.9 31.0 20.2 17.6
Net fee income 7.3 4.6 2.1 1.4
Adjusted operating
profit 0.8 0.7 0.3 0.0
% of Group net
fee income 10% 8% 4% 3%
Average number
of employees 132 98 76 68
Revenue grew by 25% with net fee income up 59%, helped by the
first full year contribution from ConSol Partners. Excluding this,
the net fee income was up 17%.
In Chile, we were pleased with another year of growth, with
record profits. There was growth in all key divisions, with the
strongest growth in the newer permanent and temporary staffing
areas but also 12% growth in net fees from the outsourcing
business.
In the IT, digital & design sector, we had the first full
year of ConSol Partners. We invested in staff to build the
temporary sales service, increased the management resource and
changed the mix in favour of more experienced consultants. The
growth in temporary sales is slow and we expect this will take time
to see any meaningful change in the sales mix. However, the other
staff changes have had a more immediate impact, with a much
improved second half result to offset the first half year and this
positive momentum gives us confidence moving into 2018.
In healthcare, we have seen an improving performance from
Pharmaceutical Strategies in the second half of the year. Following
a change in client mix during 2016 they have made progress in
broadening their client base and penetration in key clients with a
wider service offering. There have been positive changes in the
sales and recruitment teams and we are confident that this will
deliver improved returns.
Joost Kreulen
Chief Executive Officer
13 March 2018
Finance review
Performance overview
2017 2016 2015 2014 2013
Revenue (GBPm) 357.1 270.4 187.3 187.9 194.4
Net fee income (GBPm) 69.4 59.0 49.2 44.6 42.6
Operating profit (GBPm) 8.7 8.5 7.6 6.4 5.5
Adjusted operating profit
(GBPm)* 11.6 9.8 8.0 6.6 6.0
Profit before tax (GBPm) 8.1 7.9 7.1 5.9 4.9
Adjusted profit before
tax (GBPm)* 11.0 9.2 7.5 6.1 5.4
Diluted earnings per
share (p) 7.9 9.3 9.3 7.5 5.2
Adjusted diluted earnings
per share (p)* 12.5 11.3 9.9 8.0 6.2
Proposed dividend per
share (p) 1.32 1.15 1.0 0.70 0.35
--------------------------- ------ ------ ------ ------ ------
Tax
The total tax charge in the year is GBP3.6m (2016: GBP3.5m),
representing an effective tax rate of 44% (2016: 44%). The
effective rate based on the adjusted profit before tax, so
excluding the effect of amortisation, exceptional items, profit or
loss on business disposals and fair value charges on equity
instruments is 37% (2016: 40%). 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 (GBP1.1m).
-- The level of non-deductible expenses in the year (GBP0.5m)
-- A deferred tax asset has not been recognised for certain of
the tax losses around the Group (GBP0.4m).
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.
Capital management and allocation
The Board monitors the overall level of debt across the Group,
to ensure we operate in line with our facilities and investment
plans. There is a constant need to balance the conflicting
priorities of reducing the debt level, investing in the business
and returning funds to shareholders through dividend payments. Any
increase in bank facilities needs Board approval and treasury
management is part of the monthly Board reporting. The Board has
set a target debt to debtors ratio of 25% and we also monitor other
key debt ratios as follows:
2017 2016 2015 2014 2013
------------------- ----- ----- ----- ----- -----
Adjusted net debt
to EBITDA 1.5 1.5 0.8 1.3 2.2
------------------- ----- ----- ----- ----- -----
Adjusted net debt
to equity 46% 39% 24% 41% 70%
------------------- ----- ----- ----- ----- -----
The principle followed by the Board is that debt should be
available to fund working capital and that equity should be used
for significant external investments. During 2016, the decision was
taken to use debt to fund the external investments, taking into
account shareholder dilution, the available funding options and the
relative costs of raising new funds at the time. This was believed
to be the best overall result for shareholders, based on our
expectations of the business after making the investments. The
Group reported net debt increased to GBP12.0m at 31 December 2017
(2016: GBP10.5m), as expected with the GBP5.6m deferred
consideration payable on ConSol Partners in 2017. We expect to see
a reduction in debt by the end of 2018 as we do not currently plan
to make any significant external investments in the year.
2017 2016
GBPm GBPm
Cash at bank and
in hand 25.9 20.3
Overdraft facilities (20.4) (5.1)
Invoice financing (9.7) (8.9)
Bank loans (7.8) (16.8)
------- -------
Reported net debt (12.0) (10.5)
Pilot bonds (7.5) (5.2)
------- -------
Adjusted net debt (19.5) (15.7)
------- -------
The cash held by Rishworth Aviation at 31 December 2017 includes
GBP7.5m for pilot bonds (2016: GBP5.2m), amounts which are
repayable to pilots or the client throughout the contract or if it
ends early. There is no legal restriction over this cash, but given
the requirement to repay it over a three year period, when
calculating our 'debt to debtors' ratio we exclude the cash held as
pilot bonds, giving an adjusted net debt of GBP19.5m (2016:
GBP15.7m) at year end. The 'debt to debtors' ratio has increased to
45%, from 38% last year, impacted by the deferred consideration
spend in the year.
The Group generates positive cash each year, with a strong
correlation between operating cash flow and adjusted profit before
tax.
The cash generated from operations has been utilised in 2017 as
follows:
Net interest GBP0.6m
-------------------------------- --------
Taxation GBP5.5m
-------------------------------- --------
Net deferred consideration GBP5.5m
-------------------------------- --------
Capital expenditure on tangible GBP0.9m
fixed assets and software
-------------------------------- --------
Dividends to shareholders GBP0.6m
-------------------------------- --------
The deferred consideration includes GBP5.6m paid in relation to
the investment in ConSol Partners. There are no further payments
remaining on any existing investments. The taxation payment of
GBP5.5m includes GBP0.8m of advance withholding tax on dividends,
which is expected to be recovered in 2018.
Dividend
During the year, the Group paid a dividend of GBP0.6m in respect
of the year ended 31 December 2016, amounting to 1.15p per share.
For the year ended 31 December 2017, the Board is proposing a
dividend of 1.32p per share, which if approved by shareholders at
the Annual General Meeting, will be paid on 31 May 2018 to
shareholders on the register on 4 May 2018.
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 GBP50.5m
(2016: GBP52.0m). This included a reduction in the UK invoice
financing facility as ConSol Partners joined the Group arrangement
and so closed their previous facility. We also increased the
overall level of overdrafts across the Group, with the UK term loan
reducing in line with the agreed repayment terms. The amount of
facility undrawn of GBP19.3m (2016: GBP15.4m) excludes the headroom
on the invoice financing facility, which is available to the UK
companies only. The GBP10.0m revolving credit facility is with HSBC
Bank plc, entered into for investment funding in 2016. Connected to
this facility is a GBP5.0m accordion arrangement which has been
agreed in principle by the bank, but would need new credit approval
for any draw down from this amount. As part of the bank facilities
with HSBC Bank plc, security is provided by companies in the UK,
Germany and New Zealand.
2017 2016
GBPm GBPm
Overdrafts (UK) 8.6 6.2
Revolving credit facility (UK) 10.0 10.0
Term loan (UK) 2.0 3.5
Overdrafts and other loans
(non-UK) 16.9 15.3
----- -----
Total overdrafts and loans 37.5 35.0
Invoice financing facility
(UK) 13.0 17.0
50.5 52.0
----- -----
Amount of overdraft and loan
facility undrawn at year end 19.3 15.4
As part of the revolving credit facility we need to meet bank
covenant tests on a quarterly basis. All tests have been met during
the year. The covenants and our performance against them at year
end are as follows:
Covenant Target Actual
------------------------ ---------------- ---------
Net debt:EBITDA* < 2.5 times 0.6
------------------------ ---------------- ---------
Interest cover > 5.0 times 17.6
------------------------ ---------------- ---------
Debt service > 1.25
cover times 5.8
------------------------ ---------------- ---------
* 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 and contract 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.
The majority of UK 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 pooling surplus funds from around the Group to minimise the
use of the overdraft facilities.
Finance income was GBP0.1m (2016: GBP0.1m), all being bank
interest income. Finance costs were GBP0.7m (2016: GBP0.7m), which
related to interest payable on invoice discounting, bank loans and
overdrafts. The effective interest rate for bank facilities for the
year was 2.6% (2016: 2.6%).
Foreign exchange risk
There was no foreign exchange from trading in the year (2016:
nil).
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 overall by movements in exchange rates on
the translation of Group results, the largest are detailed
below:
Currency Decline/(increase)
in Sterling in
the year using
average rates
(P&L)
-------------- -------------------
Japanese
Yen 2%
-------------- -------------------
Indonesian
Rupiah 4%
-------------- -------------------
US Dollar 5%
-------------- -------------------
Australian
Dollar 8%
-------------- -------------------
Euro 7%
-------------- -------------------
Chilean Peso 9%
-------------- -------------------
Thai Bhat 9%
-------------- -------------------
New Zealand
Dollar (2%)
-------------- -------------------
There are a small number of forward currency contracts in place
at IMS (to sell US dollars and Pounds sterling) and ConSol Partners
(to sell Euros). The amount covered by these at year end was
GBP0.8m (2016: GBP0.6m).
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 2017
were 41 (2016: 47), with a year-end balance of 40 (2016: 41 days).
This has reduced with Rishworth Aviation joining the Group as they
have low debtor days, with airlines typically paying either in
advance or within a short period of pilots being paid.
The debtor days in UAE remain higher than the Group average,
although good progress has been made in managing this position. The
outstanding debtor balance has reduced at the end of December 2017,
although there have been further bad debt write downs on historic
debts during the year. The Group's bad debt expense was GBP0.8m in
the year (2016: GBP0.6m).
Investments and non-controlling interests
Goodwill and intangibles
Goodwill and intangibles represent the largest assets on the
balance sheet and arise due to the acquisitive strategy followed by
the Group. As at 31 December 2017 the balance was GBP54.1m (2016:
GBP56.8m). The movements in the year were GBP1.7m of amortisation
(2016: GBP1.1m) and foreign exchange loss of GBP1.0m (2016: gain of
GBP4.7m). There was no impairment in the year (2016: GBP0.6m).
Investments and disposals
A deferred consideration payment of GBP5.6m was paid in cash in
relation to the investment in ConSol Partners in October 2016,
being the final payment due for the purchase of the 65%
interest.
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.
In September 2017 the Group disposed of its 51% investment in PT
Learning Resources, a non-core training business in Indonesia. This
resulted in a loss on disposal of GBP0.9m, after consideration
received of GBP0.1m. The loss represents the write off of historic
funding balances with no cash paid to the purchaser. Further cash
consideration of GBP0.2m could be receivable, but is contingent on
the outcome of a local tax investigation. No asset has been
recognised at this stage.
Management equity philosophy and non-controlling interests
A key component of our business model is management equity,
where senior management own shares directly in the operating
companies they are responsible for.
When 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. We also
enable senior 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 the business to the
next level. Management need to buy the 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. 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 limited or no entitlement to dividends
and the price paid by the management shareholder reflects these
restricted rights.
Based on the results for the year ended 31 December 2017, 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 2018 using the valuation mechanisms in
existing shareholders agreements, would total GBP9.4m (2016:
GBP9.0m), ignoring any potential discounts under the shareholders
agreements for shares being acquired before the end of the holding
period. There is no legal 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 majority of 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 this
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 April 2017, we increased our interest in Monroe Consulting
(executive search in the Philippines) from 70% to 90%. The
consideration was GBP0.1m, all paid in cash. This purchase is
treated as a fair value charge in the income statement.
In May 2017, we increased our shareholding in Monroe Consulting
(executive search in Thailand) by 10%, taking our interest up to
80%. The consideration of GBP0.2m was paid in cash. This purchase
is treated as a fair value charge in the income statement. At the
same time we have sold 10% second generation equity (taking our
interest back to 70%) to local managers who became first time
shareholders in the company. In line with our equity model, the
second generation shares only create value if the profits exceed
historic levels.
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
March 2018 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 12 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.
Spencer Wreford
Group Finance Director & Chief Operating Officer
13 March 2018
Consolidated income statement
2017 2016
Note GBPm GBPm
Continuing operations
Revenue 2 357.1 270.4
Cost of sales (287.7) (211.4)
Net fee income 2 69.4 59.0
Administrative costs (57.8) (49.2)
---------- ----------
Adjusted operating profit* 11.6 9.8
Exceptional items - -
Fair value on acquisition of non-controlling shares (0.3) (0.2)
Loss on business disposal (0.9) -
Intangible amortisation (1.7) (1.1)
---------- ----------
Operating profit 2 8.7 8.5
Finance income 4 0.1 0.1
Finance costs 4 (0.7) (0.7)
---------- ----------
Profit before tax 8.1 7.9
Income tax 5 (3.6) (3.5)
Profit for the year 4.5 4.4
Attributable to:
Equity holders of the parent 4.1 4.8
Non-controlling interest 0.4 (0.4)
---------- ----------
4.5 4.4
* 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 8.0 9.6
Diluted 7 7.9 9.3
Earnings per share (adjusted) (pence):
Basic 12.6 11.7
Diluted 7 12.5 11.3
Consolidated statement of comprehensive income
2017 2016
GBPm GBPm
Items that may be reclassified subsequently to income statement:
Exchange differences on translation of foreign operations (1.2) 5.1
Items that will not be reclassified to income statement:
Exchange differences on translation of foreign operations of non-controlling interest (0.1) 0.5
------ -----
Net (expense)/income recognised directly in equity (1.3) 5.6
Profit for the year 4.5 4.4
------ -----
Total comprehensive income for the year 3.2 10.0
Attributable to:
Equity holders of the parent 2.9 9.9
Non-controlling interest 0.3 0.1
------ -----
3.2 10.0
Consolidated balance sheet
2017 2016
GBPm
Note GBPm Revised
ASSETS
Non-current assets
Property, plant and
equipment 1.4 1.6
Goodwill 8 35.9 36.0
Other intangible assets 18.2 20.8
Deferred tax assets 1.0 1.0
56.5 59.4
Current assets
Trade and other receivables 10 53.1 50.2
Cash and cash equivalents 25.9 20.3
------ ---------
79.0 70.5
------ ---------
Total assets 135.5 129.9
LIABILITIES
Current liabilities
Trade and other payables 11 42.0 44.9
Current tax liabilities 2.6 3.1
Borrowings 9 36.6 15.7
81.2 63.7
Non-current liabilities
Borrowings 9 1.3 15.1
Deferred tax liabilities 4.1 4.4
------ ---------
Total non-current liabilities 5.4 19.5
------ ---------
Total liabilities 86.6 83.2
------ ---------
Net assets 48.9 46.7
EQUITY
Share capital 2.4 2.4
Share premium account 22.4 22.4
Merger reserve 0.9 0.9
Retranslation reserve 5.0 6.1
Equity reserve (7.5) (7.3)
Other reserves (0.7) (0.4)
Retained earnings 19.6 16.2
------ ---------
Equity attributable
to owners of the Company 42.1 40.3
Non-controlling interest 6.8 6.4
------ ---------
Total equity 48.9 46.7
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
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
Profit for
the year - - - - - - 4.1 0.4 4.5
Dividend - - - - - - (0.6) - (0.6)
Currency
translation
differences - - - (1.1) - (0.1) - (0.1) (1.3)
Non-controlling
interest
acquired
and other
movements
in the year - - - - (0.2) - - 0.1 (0.1)
Purchase
of own shares
in Employee
Benefit Trust - - - - - - (0.1) - (0.1)
Share based
payment - - - - - (0.2) - - (0.2)
Balance at
31 December
2017 2.4 22.4 0.9 5.0 (7.5) (0.7) 19.6 6.8 48.9
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 GBP0.6m (2016: GBP0.8m) and exchange differences on intercompany
long-term receivables amounting to (GBP1.3m) (2016: (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
2017 2016
GBPm
GBPm Revised
Profit for the year 4.5 4.4
Adjustments for:
Depreciation and software amortisation 1.0 0.9
Intangible amortisation (identified
as per IFRS 3 'Business combinations') 1.7 1.1
Taxation expense recognised in income
statement 3.6 3.5
Loss on business disposal 0.9 -
Share based payments (0.2) 0.2
Net finance charge 0.6 0.6
------- ---------
12.1 10.7
Increase in trade receivables (2.8) (1.2)
Increase in trade payables 3.3 1.6
Cash generated from operations 12.6 11.1
Interest paid (0.7) (0.8)
Income taxes paid (5.5) (4.7)
Net cash from operating activities 6.4 5.6
Cash flows from investing activities
Cash acquired with business acquisitions - 7.9
Consideration paid for business acquisitions (5.6) (14.3)
Consideration received for business
disposals 0.1 0.1
Purchase of property, plant and equipment
and software (0.9) (0.8)
Finance income 0.1 0.1
Net cash used in investing activities (6.3) (7.0)
Cash flows from financing activities
Purchase of own shares in Employee
Benefit Trust (0.1) -
Non-restricted shares acquired in existing
subsidiaries - (0.2)
Increase in borrowings 15.3 2.4
Proceeds from bank loan 0.1 11.3
Repayment of bank and other loan (9.2) (1.2)
Increase in invoice discounting 0.7 0.8
Dividends paid to shareholders (0.6) (0.5)
Dividends paid to non-controlling interest
in subsidiaries (0.1) (0.2)
Net cash from financing activities 6.1 12.4
Net increase in cash and cash equivalents 6.2 11.0
Effect of foreign exchange rate changes (0.6) 1.6
Cash and cash equivalents at beginning
of the year 20.3 7.7
Cash and cash equivalents at end of
the year 25.9 20.3
------- ---------
2017 2016
GBPm GBPm
Bank overdrafts at beginning of the
year (5.1) (2.3)
Increase in the year (15.3) (2.4)
Effect of foreign exchange rate changes - (0.4)
------- ---------
Bank overdrafts at end of the year (20.4) (5.1)
Cash, cash equivalents and bank overdrafts
at end of the year 5.5 15.2
======= =========
1 Basis of preparation and general information
The financial information has been abridged from the audited
financial information for the year ended 31 December 2017.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2017
or 2016, but is derived from those accounts. Statutory accounts for
2016 have been delivered to the Registrar of Companies and those
for 2017 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
2016 and 2017, except as noted below.
Revised presentation of cash pooling arrangements
Following an agenda decision by the IFRS Interpretation
Committee regarding offsetting and cash pooling arrangements, the
Group has revised its disclosure of its cash pooling arrangement.
This requires grossing up of cash and overdraft balances associated
with cash pooling arrangements. As a result we revised the
comparative balance sheet and cash flow presentation at 31 December
2016. The impact is to increase cash and cash equivalents and
short-term borrowings by GBP2.3m at 31 December 2016 (2015:
GBPnil). There was no impact on net debt. The impact of this change
as at 31 December 2015 was GBPnil and therefore a 'Consolidated
balance sheet' for 2015 has not been presented.
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 2018.
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
2017 UK Europe Pacific Americas Total
GBPm GBPm GBPm GBPm GBPm
Revenue 86.7 98.8 132.7 38.9 357.1
Net fee income 23.4 16.5 22.2 7.3 69.4
Adjusted operating
profit* 2.2 5.1 3.5 0.8 11.6
Operating profit 1.7 4.9 1.8 0.3 8.7
* 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 GBP83.9 million (2016:
GBP78.2 million) from Germany and revenue of Asia Pacific includes
GBP97.5 million (2016: GBP43.3 million) from New Zealand.
The analysis of the Group's revenue and gross profit by client
destination is set out below:
Year ended 31 December Continental Asia
2017 UK Europe Pacific Americas Total
GBPm GBPm GBPm GBPm GBPm
Revenue 107.8 129.8 78.7 40.8 357.1
Net fee income 20.8 22.9 17.0 8.7 69.4
The analysis of the Group's business by geographic 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.
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
The following segmental analysis by sector has been
included as additional disclosure to the requirements
of IFRS 8.
Net fee Net fee
Revenue Revenue income income
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
Professional
services 14.3 12.8 6.9 5.8
IT, digital &
design 56.4 34.4 17.9 11.9
Technical & industrial 129.7 127.4 21.3 22.9
Retail 35.2 28.9 4.9 3.9
Healthcare 13.5 12.5 3.5 3.4
Executive search 4.7 4.1 4.5 3.9
Aviation 97.4 43.3 5.7 2.5
Other services 5.9 7.0 4.7 4.7
357.1 270.4 69.4 59.0
---------------------------------- ----------- ----------- ----------- -----------
3 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.
2017 2016
GBPm GBPm
Impairment of goodwill - 0.5
Impairment of intangibles - 0.1
Contingent consideration (credit) - (0.6)
- -
Fair value on acquisition of non-controlling shares
The following purchases of non-controlling shares are treated as
a fair value charge in the income statement.
2017 2016
GBPm GBPm
Fair value on acquisition of non-controlling
shares 0.3 0.2
0.3 0.2
In April 2017, the Group increased its interest in Monroe
Consulting (executive search in the Philippines) from 70% to 90%.
The consideration was GBP0.1m, all paid in cash.
In May 2017, the Group increased its shareholding in Monroe
Consulting (executive search in Thailand) by 10%, taking our
interest up to 80%. The consideration of GBP0.2m was paid in
cash.
4 Finance income and cost
2017 2016
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 (0.5) (0.4)
Interest on tax payments - (0.1)
(0.7) (0.7)
Net finance cost (0.6) (0.6)
5 Taxation
2017 2016
GBPm GBPm
Current taxation
Current tax (3.8) (3.3)
Adjustment to tax charge in respect
of previous periods - (0.1)
(3.8) (3.4)
Deferred tax - current year 0.2 (0.1)
Total income tax expense in the income
statement (3.6) (3.5)
6 Reconciliation of Adjusted profit before tax to Profit before tax
2017 2016
GBPm GBPm
Profit before tax 8.1 7.9
Amortisation of intangibles 1.7 1.1
Loss on business disposal 0.9 -
Fair value on acquisition of non-controlling
shares 0.3 0.2
Adjusted profit before tax 11.0 9.2
7 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:
2017 2016
GBPm GBPm
Earnings
Earnings attributable to equity holders
of the parent 4.1 4.8
Adjustments :
Loss on business disposal 0.9 -
Fair value on acquisition of non-controlling
shares 0.3 0.2
Intangible amortisation 1.7 1.1
Non-controlling shares of intangible
amortisation (0.2) -
Tax on intangible amortisation (0.4) (0.2)
Earnings for the purpose of adjusted
earnings per share 6.4 5.9
Number of shares Millions Millions
Weighted average number of shares -
basic 50.9 50.2
Dilution effect of share options 0.5 1.7
Weighted average number of shares -
diluted 51.4 51.9
Earnings per share Pence Pence
Diluted earnings per share 7.9 9.3
Adjusted diluted earnings per share 12.5 11.3
Basic earnings per share has been calculated by dividing the
profit attributable to shareholders by the weighted average number
of shares in issue during the period after deducting shares held by
the Employee Benefit Trust, although the impact of this in 2017 was
minimal since the shares were purchased in December 2017. The
trustees have waived their rights to dividends on the shares held
by the Employee Benefit Trust.
The dilution on the number of shares is from share options
granted to the senior management.
8 Goodwill
2017 2016
GBPm GBPm
At 1 January 36.0 25.2
Acquisition of new subsidiary undertakings - 8.1
Impairment - (0.5)
Foreign exchange (0.1) 3.2
------ ------
At 31 December 35.9 36.0
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
approved annual budgets 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 8% to 15% (2016: 10% to 20%) 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: 9%
Continental Europe:
8%
Asia Pacific: 10%
to 15%
Americas: 10% to
13%
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 6.0% 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: 1.5%
Continental Europe:
1.4% to 1.6%
Asia Pacific: 0.6% to
6.0% (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.
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.
As at 31 December 2017 the Group holds goodwill of GBP2.5m and
intangible assets of GBP4.8m related to Pharmaceutical Strategies.
This has been tested for impairment and there is no indication that
there has been any impairment. Given the reduction in profit
contribution since the business was acquired, the assumptions in
the value in use calculation are based on a return to the
pre-acquisition profit level within 3 years, following an improving
trading performance through 2017 and management projections of
growth, with industry growth rates thereafter. The market remains
positive and the business is geared to deliver an increased trading
level, in line with the pre-acquisition performance. We have set
our targets and growth model to get back to this position. As part
of the impairment review we have calculated separate sensitivity
analysis based on a 5 year period to get back to pre-acquisition
profit levels, an increase of 2% in the weighted average cost of
capital and a lower long-term growth rate. In all cases no
impairment is indicated. However, a change in these assumptions
increases the risk of an impairment in future periods. As an
indication of the possible range of outcomes, if the growth rate is
reduced after 2018 to industry rates, there is an impairment risk
of GBP1.3m, whilst an additional 1% increase in the weighted
average cost of capital (on top of the 2% increase in the
sensitivity) would lead to an impairment risk of GBP0.6m.
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:
2017 2016
GBPm GBPm
Goodwill by region
UK 11.9 11.9
Continental Europe 14.5 14.0
Asia Pacific 6.3 6.6
Americas 3.2 3.5
----- -----
35.9 36.0
9 Borrowings
2017 2016
GBPm GBPm
Current
Bank overdrafts 20.4 5.1
Amounts related to invoice
financing 9.7 8.9
Current portion of bank loans 6.5 1.7
36.6 15.7
Non-current
Bank loans 1.3 15.1
----- -----
1.3 15.1
----- -----
Total financial liabilities 37.9 30.8
At 31 December 2017 the multi-currency revolving credit facility
of GBP10.0 million, expiring in 2021, had a balance of GBP1.0
million (2016: GBP8.5 million). The facility was entered into in
the year ended 31 December 2016 to part-fund the investments in
Rishworth Aviation and ConSol Partners. Interest is payable at 1.5%
plus LIBOR or EURIBOR.
At 31 December 2017 the UK term loan, expiring in 2018, had a
balance of GBP2.0 million (2016: GBP3.5 million). No drawdowns were
made during the year (2016: drawdown of GBP2.9 million to part fund
the investment in Rishworth Aviation and also fund the contingent
consideration payment due for Pharmaceutical Strategies). GBP1.5
million of this loan was repaid during the year and GBP2.0 million
is due to be repaid during the year ended 31 December 2018.
Interest is payable at 1.5% above UK base rate. A German bank loan
of EUR5.0 million (2016: 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
GBP7.5 million (2016: GBP5.0 million). The balance on this
multi-currency facility as at 31 December 2017 was GBP4.1 million
(2016: GBP0.9 million). The interest rate was fixed during the year
at 1.0% above applicable currency base rates. A UK based $1.5
million overdraft facility to provide working capital funding to
Pharmaceutical Strategies had a balance of $nil (2016: $0.7
million) as at 31 December 2017. Interest on this USD facility is
payable at 2% over currency base rates. During the year a $2.0
million overdraft facility was set up in the United States directly
with Pharmaceutical Strategies to replace this facility, which will
not be renewed in 2018. An EUR8.0 million overdraft facility is
also in place in Germany. The balance at 31 December 2017 was
EUR4.8 million (2016: EUR1.2 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 7.4%.
Movement in net borrowings 2017 2016
GBPm GBPm
As at 1 January (10.5) (7.3)
Net increase in cash and cash
equivalents before cash/overdraft
acquired with business acquisition 6.2 3.1
Net cash acquired with business
acquisition - 7.9
Amounts related to invoice
financing acquired with business
acquisition - (1.2)
Net increase in overdrafts
and loans (6.2) (12.5)
Increase in invoice financing (0.7) (0.8)
Currency translation differences (0.8) 0.3
------- -------
As at 31 December (12.0) (10.5)
Analysis of net borrowings 2017 2016
GBPm GBPm
Financial liabilities - borrowings (37.9) (30.8)
Cash and cash equivalents 25.9 20.3
------- -------
As at 31 December (12.0) (10.5)
Cash and cash equivalents at 31 December 2017 include cash with
banks of GBP253,000 (2016: GBP329,000) held by a subsidiary in
China which is subject to currency exchange restrictions.
The cash and cash equivalents above include GBP7.5 million
(2016: GBP5.2 million) of pilot bonds held by Rishworth Aviation.
See note 11 for more details.
10 Trade and other receivables
2017 2016
GBPm GBPm
Trade receivables 44.0 42.1
Less provision for impairment
of trade receivables (0.8) (1.0)
------ ------
Net trade receivables 43.2 41.1
Prepayments 1.5 2.0
Accrued income 3.1 2.5
Deferred and contingent
consideration 0.2 0.3
Corporation tax receivable 1.8 0.7
Other receivables 3.3 3.6
------ ------
53.1 50.2
Trade receivables include GBP31.7m (2016:
GBP30.4m) on which security has been given
as part of bank facilities.
11 Trade and other payables
2017 2016
GBPm GBPm
Current
Trade payables 2.1 1.5
Other tax and social security 8.4 8.8
Pilot bonds 7.5 5.2
Client deposits 0.7 0.8
Temporary recruitment
worker wages and social
securities 3.9 4.3
Other payables 2.0 1.5
Accruals 17.4 17.2
Deferred and contingent
consideration - 5.6
------ ------
42.0 44.9
The pilot bonds represent unrestricted funds held by Rishworth
Aviation that are typically repayable to the pilot over the course
of a 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, GBP4.5 million (2016: GBP3.3 million) would be
repayable in more than one year.
12 Dividends
2017 2016
GBP000 GBP000
Amount recognised as distribution to equity holders in the year:
Final dividend for the year ended 31 December 2016 of 1.15 pence (2015: 1.0 pence) per share 564 490
Proposed final dividend for the year ended 31 December 2017 is 1.32 pence (2016: 1.15 pence)
per share 644 564
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
FR SFAESDFASESD
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