TIDMEMR
RNS Number : 6665S
Empresaria Group PLC
13 March 2019
13 March 2019
Empresaria Group plc
("Empresaria" or the "Group")
Results for the year ended 31 December 2018
Record adjusted profit before tax with a 52% increase in final
dividend
Empresaria, the international specialist staffing group, is
pleased to report its final results, showing continued delivery on
its growth strategy with record adjusted profit before tax and a
52% increase in its dividend.
% change
(constant
Financial Highlights 2018 2017 % change currency)
------------------------------ ---------- ---------- ----------- ------------
Revenue GBP366.8m GBP357.1m +3% +5%
Net fee income GBP72.3m GBP69.4m +4% +6%
Operating profit GBP10.3m GBP8.7m +18% +21%
Adjusted operating profit* GBP12.3m GBP11.6m +6% +8%
Profit before tax GBP9.4m GBP8.1m +16% +18%
Adjusted profit before
tax* GBP11.4m GBP11.0m +4% +6%
Earnings per share (diluted) 9.1p 7.9p +15%
Adjusted diluted earnings
per share* 12.1p 12.5p -3%
Final dividend 2.0p 1.32p +52%
-- Net fee income of GBP72.3m up 4%, 6% in constant currency
-- Conversion ratio increased to 17.0% (2017: 16.7%)
-- Adjusted diluted earnings per share of 12.1p, down 3% due to profit mix
-- Proposed final dividend increased by 52% to 2.0p (2017: 1.32p)
-- Adjusted net debt reduced to GBP17.1m (2017: GBP19.5m)
Operational highlights
-- Continued to build scale in key target sectors and geographies
- Investment in Peru finalised in July 2018, to strengthen
presence in high potential Latin American market
- Two new offices opened in Asia Pacific region in January
2019
-- Invested in building strength and depth in the central team,
including appointment of Chief Operating Officer in November
2018
-- More focused strategy with central support bolstered in areas
of technology, training, and marketing to improve productivity of
brands
-- Strong profit growth from IMS (India), Alternattiva (Chile),
LMA (UK), ConSol Partners (UK & USA) and Rishworth (New
Zealand)
-- Strong platform in place for next phase of growth
* adjusted to exclude amortisation of intangible assets
identified in business combinations, exceptional items, gain or
loss on disposal of businesses, fair value charges on acquisition
of non-controlling shares and, in the case of earnings, any related
tax.
Chief Executive Officer Spencer Wreford said:
"We are pleased to be reporting a fourth consecutive year of
record adjusted profit before tax. We have also reduced the net
debt in the Group which, combined with the strength of our balance
sheet and the Board's confidence in the Group's prospects, has
allowed us to increase our annual dividend by 52%.
In line with our strategy we continue to invest in the Group,
with a new brand in Peru joining in July 2018, as we strengthen our
presence in the high potential Latin American market. We have also
invested in our central team, to provide more support to the growth
plans of our brands, with a new Chief Operating Officer, Rhona
Driggs, and Group Finance Director, Tim Anderson, joining the
board, as well as new staff with responsibilities for technology,
training and marketing. Rhona brings with her 28 years of staffing
industry experience, while Tim brings significant listed company
finance experience. With a strong platform in place, these
investments will help us to be more focused in our approach and
work more closely with our brands to fully deliver the benefits of
being in a Group and to deliver the next phase of growth.
Our focus in 2019 is to deliver organic growth and strengthen
our core brands. With the quality of the brands in our Group and a
more focused strategy, we see good opportunities to generate
profitable growth, but we remain mindful of the increasing economic
uncertainty arising from political risks."
A video overview of the full year results from Chief Executive
Officer Spencer Wreford and Group Finance Director Tim Anderson is
available to watch here: http://bit.ly/EMR_FY18
- Ends -
Enquiries:
Empresaria Group plc via Alma
Spencer Wreford, Chief Executive Officer
Tim Anderson, Group Finance Director
Arden Partners (Nominated Adviser and Broker)
John Llewellyn-Lloyd / Ciaran Walsh 020 7614 5900
Alma PR (Financial PR) 020 3405 0205
Rebecca Sanders-Hewett empresaria@almapr.com
Sam Modlin
Hilary Buchanan
Notes for editors:
-- Empresaria Group plc is an international specialist staffing
group with 20 brands operating in 21 countries across the globe
being the UK, Germany, Japan, India, UAE, Indonesia, Chile,
Australia, Thailand, Singapore, Finland, USA, New Zealand, China,
Malaysia, Vietnam, Austria, Hong Kong, Mexico, Philippines and
Peru.
-- 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 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
We are pleased to report our full year results which deliver
another year of profitable growth and increased dividend. We have
made good progress in the year and have invested in key areas of
the central support function of the Group to maximise future
organic growth across our brands. We have a focused strategy in
place to deliver the next phase of growth and are confident in the
Group's prospects for the future.
Our purpose and what makes us different
As an international specialist staffing Group, we have the
privilege of being able to help people realise their potential
through work. It is a rewarding activity, helping candidates to
progress their careers so they can realise their potential and
helping clients find the best candidates so their business can
realise its potential.
Our strategic priorities are building leading brands and
improving productivity. We have invested in strengthening our
central management team over the last year to ensure we are
supporting our staff, helping them to develop their skills and
experience, and helping our brands to grow.
Our business model is a key differentiator for us in the
market:
-- Multi-branded with niche sector experts: Local expertise and
market knowledge ensures our brands understand the needs of clients
and candidates alike. We currently have 20 brands across the
Group.
-- Management equity philosophy: Senior managers hold shares in
their operating companies, so aligning their interests with those
of our shareholders. This helps us to attract and then retain key
management and encourages them to take a long-term view on business
opportunities. At the end of 2018 we had 57 managers holding shares
in the operating companies they are responsible for.
-- Diversified by geography and sector: We currently operate in
21 countries and this spread of operations reduces our reliance on
any single market and mitigates ongoing economic and political
risks. We have a good balance of operations in both the largest
staffing markets as well as the high potential markets of Latin
America and Asia.
-- Range of staffing services: Provision of permanent, temporary
and contract, RPO/offshore recruitment services with a bias towards
temporary recruitment.
The market
The economic growth forecasts are currently positive across our
geographies, although we have seen a general weakening of these
growth rates over the last few months. Political risks remain high,
in particular with the uncertainty over the UK's exit from the
European Union weighing on business confidence in the UK and
Germany and the increased trade tariffs between the US and China
impacting on global growth rates.
We continue to see candidate shortages across our largest
markets, as well as skills shortages due to the advance of
technology with demand increasing for skills that are not widely
available. This creates opportunities for our brands who, as
experts in their markets, are well placed to find the candidates
with the right skills and can then place these more quickly.
The current prospects for the staffing sector remain positive
and we see good opportunities for our brands, but with the
increasing risks and levels of business uncertainty, we remain
vigilant to any change in conditions. According to "Staffing
Industry Analysts" forecasts ("Global Staffing Industry Market
Estimates and Forecast", November 2018), the global staffing market
is expected to grow by 6% in 2019, through a mix of higher growth
rates expected in China and India, offset by low growth rates in
the UK, US and Australia. Our spread of operations helps us to
manage the impact of localised issues and make the most of positive
market conditions. We have seen the benefit of this diversified
model over the last two years in the face of regulatory changes in
Germany and Japan, the impact of which are now fully reflected, and
it continues to be a core part of our business model.
People & culture
There have been a number of changes to the executive team during
2018. In May Joost Kreulen stepped down as Chief Executive Officer.
He continues to assist the Group, working as a part-time consultant
in Germany, supporting our Headway brands. The Board would like to
thank Joost for his commitment and success since he joined
Empresaria, helping to stabilise and then turn around the business,
leaving a solid platform for the next phase of growth and
development.
Spencer Wreford took over as CEO, having been with the Group for
eight years, most recently as the Chief Operating Officer and
previously as Group Finance Director.
In March 2018 we welcomed Tim Anderson as the new Group Finance
Director and in November 2018 we appointed Rhona Driggs as Chief
Operating Officer. Rhona brings with her 28 years of staffing
industry experience, while Tim brings significant listed company
finance experience. These appointments have strengthened our
executive management team, providing the expertise needed to take
the business forward.
The average number of staff across the Group increased to 1,625
(2017: 1,367). The success of the Group is down to the hard work
and commitment of every one of them and the Board would like to
thank them for their contribution to our continued success.
Governance
We operate with a decentralised structure, with local management
responsible for running their businesses but with 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 others realise their potential.
We take stakeholder engagement seriously. We have regular
communication with Group companies and staff, we present to
investors, both private and institutional, to explain our strategy
and results, and we engage with regulators and Government agencies
directly in response to consultations or proposals and through our
membership of worldwide trade associations.
During 2018, we chose to adopt the QCA Corporate Governance Code
2018, which we consider is most appropriate for our size, the
regulatory framework that applies to AIM companies and is best
aligned to the expectations of our stakeholders.
Investments
In July 2018 we finalised our investment in 60% of the equity
shares in Grupo Solimano, an established provider of outsourced and
temporary staffing services in Peru. This strengthens our presence
in the high potential Latin American staffing market, alongside
existing brands in Chile and Mexico.
Shareholder returns
The Group has delivered adjusted diluted earnings per share of
12.1p (2017: 12.5p), with the slight reduction in the year largely
due to the mix of profits, with higher returns coming from those
brands with a larger non-controlling interest share. We use an
adjusted measure to exclude amortisation of intangible assets
identified in business combinations, exceptional items, gain or
loss on disposal of businesses, fair value charges on acquisition
of non-controlling shares and related tax. We feel this is more
reflective of the underlying trading results and is the measure
typically adopted by the investor and analyst community. The
reported diluted earnings per share was 9.1p (2017: 7.9p).
The Board has reviewed the dividend in line with our progressive
dividend policy and for the year ended 31 December 2018 we propose
a dividend of 2.0p, up 52% on the prior year, demonstrating the
strength of the balance sheet and the Board's confidence in the
Group's prospects. Subject to shareholder approval at the Annual
General meeting, the dividend will be paid on 31 May 2019 to
shareholders on the register on 10 May 2019.
We have also returned cash to shareholders through a share
buy-back programme with 479,704 shares acquired during the year.
The total cost of these shares was GBP0.4m. These shares are held
in the Empresaria Employee Benefit Trust to cover potential
exercises of vested share options to reduce the dilutive effect of
issuing new shares.
Outlook
We have created a strong platform for the Group in recent years,
bolstered by the investments made in the central management team,
and we are well positioned to deliver the next phase of growth and
to continue to create long-term value for shareholders. As we start
2019 we are focused on delivering organic growth and strengthening
our core brands. The economic environment remains broadly positive
and whilst we remain cautious on the political risks, we see good
opportunities for the Group in the year ahead.
Tony Martin
Chairman
12 March 2019
Chief Executive's Review
Group performance in the year
Empresaria has delivered a 4% increase in adjusted profit before
tax to GBP11.4m, representing a fourth consecutive year of record
profits. Our diversified business has delivered on opportunities to
mitigate the effect of some challenging markets and the Group's
continued growth supports this approach. We have made further
investments during the year, including the addition of Grupo
Solimano to the Group to strengthen our presence in Latin America
and building a stronger central team to provide enhanced support to
our operating companies. While this has resulted in an increase in
our central staff costs, we believe it will generate a far greater
value in the coming years.
Group revenue increased by 3% to GBP366.8m (2017: GBP357.1m),
with net fee income up 4% to GBP72.3m (2017: GBP69.4m). Currency
movements had a dampening impact in the year, with constant
currency increases of 5% in revenue and 6% in net fee income.
Net fee income UK Continental Asia Pacific Americas Intercompany Total
(GBPm) Europe
2017 23.4 16.5 22.2 7.3 - 69.4
----- ------------ ------------- --------- ------------- ------
Movement 0.3 (1.1) 3.6 0.9 (0.4) 3.3
----- ------------ ------------- --------- ------------- ------
Investments/
(divestments) - - (0.3) 0.9 - 0.6
----- ------------ ------------- --------- ------------- ------
Currency - 0.2 (1.0) (0.2) - (1.0)
----- ------------ ------------- --------- ------------- ------
2018 23.7 15.6 24.5 8.9 (0.4) 72.3
----- ------------ ------------- --------- ------------- ------
The split of net fee income was 37% from permanent sales (2017:
36%), 58% from temporary & contract (2017: 60%) and 5% from RPO
and Offshore Recruitment Services (ORS) (2017: 4%). The temp margin
percentage was 12.5%, down from 12.7% in the prior year, mainly due
to the addition of Grupo Solimano with a margin of 10.7% and
reduced margins in both Germany and Japan. The Group generated 67%
of its net fee income from outside the UK (2017: 66%).
There was a mix of results across the Group, with three out of
four regions delivering growth in operating profit. With a
diversified spread of operations across geographies and sectors, we
are not reliant on any single market or brand and this remains a
core strength.
There were particularly strong results from IMS (RPO &
Offshore Recruitment Services in India), Alternattiva (outsourcing,
perm and temporary business in Chile), LMA (professional services)
and the recent investments in ConSol Partners (IT) and Rishworth
(aviation):
-- IMS was a start-up in 2006 and has seen 50% growth in net fee
income in the year. With the launch of a second city location in
Jaipur, India and a move into a newly built office space in early
2019, there is space to expand into and we see good opportunities
across their core UK and US markets.
-- Alternattiva has consistently grown in recent years and with
the new investment in Peru, we have increased our scale and depth
in this high potential region.
-- LMA has successfully integrated the previously standalone
insurance business and is developing depth across its service lines
in the UK and Singapore.
-- In ConSol Partners we have seen growth from both the UK and
US offices, but the growth was particularly strong in the US which
is now delivering on our expectations following a difficult
2017.
-- In Rishworth they have seen the benefit from the investment
in new bases made in 2017, however we see a more challenging market
for 2019.
As we have previously highlighted, we have been impacted by
changes to regulations in Germany and Japan, limiting how long
temporary workers can work in a non-permanent position and the
equal pay rates in Germany. We have seen profits decline in the
logistics part of our Headway business in Germany and in Skillhouse
(IT) in Japan, both of which have a high proportion of temporary
sales. With the regulatory changes now stabilised, the impact has
been fully reflected with no further impact expected, however we
start 2019 with a lower number of temporary workers than this time
a year ago in both businesses. We expect to see the level of
temporary workers increase through the year and we remain confident
about the long-term prospects for these large staffing markets.
2018 was the last year in our five year plan, which targeted
average annual net fee income growth of 10%, a conversion ratio of
20% and a debt to debtors ratio of 25%.
2018 2017 2016 2015 2014
Net fee income growth
(%) 4% 18% 20% 10% 5%
------ ------ ------ ------ ------
Conversion ratio (%) 17.0% 16.7% 16.6% 16.3% 14.7%
------ ------ ------ ------ ------
Debt to debtors ratio 36% 45% 38% 23% 32%
------ ------ ------ ------ ------
We have made good progress across the five year period, although
not all targets have been met. The net fee income growth was 4% in
2018, with the five year average annual growth being 11%. We have
delivered incremental improvements in the conversion ratio, with
the current year of 17.0% a record level for the Group. Having met
the debt to debtors target in 2015, we made the decision to use
debt to finance the investments in ConSol Partners and Rishworth in
2016. We are pleased that the ratio has reduced, as expected, in
2018 to 36%. We remain focused on these KPIs going forwards but are
not setting new five year targets.
A focused strategy
We have a unique business model for the sector, with our
multi-brand approach, management equity philosophy and diversified
operations. We operate with a decentralised structure, with
autonomy given to local brand management to run their business on a
day to day basis and these principles are core to our purpose of
helping people realise their potential. These are an important part
of our DNA and we are not going to change this. In the current
market and with the size of our Group, we need to be more focused
in our approach and work more closely with our brands to fully
deliver the benefits of being in a group and to be able to react
quickly and effectively to the changes impacting the staffing
sector, from increased automation and digital disruption, to
candidate shortages and regulatory changes.
To address this need we have grown the central management team,
with the appointment of Rhona Driggs as Chief Operating Officer in
November 2018 and key hires covering technology, learning &
development and marketing. Rhona brings a wealth of experience from
large international staffing companies and is recognised as one of
the Staffing Industry Analysts "Global Power 150 Women in
Staffing". Rhona has responsibility for the Group's overall
operations and, together with her new team, is supporting the
brands to identify new business opportunities and to share best
practice across the Group.
Our strategic priority in 2019 is based on a more focused
approach in our core markets and is designed to deliver organic
growth in net fee income and productivity gains to drive profit
growth. This will be delivered through a two-pronged strategy:
Building size and scale in key sectors and geographies through
leading brands, and improving productivity to generate better
returns.
-- Building size and scale in key sectors and geographies through leading brands
With our multi-branded model we want to create leading brands in
each of our niche sectors and we believe there is a clear
opportunity to drive a significant increase in profitability from
our existing brands. The focus on size and scale is important
because it helps create a stronger business with more depth and
synergies than a smaller brand. We are focused on growing our
presence in our core sectors and will look for opportunities to
expand our main brands across our key geographies, utilising our
knowledge of operating in these important markets.
This is illustrated by some of our recent activity:
-- At the end of 2018 ConSol Partners launched 4ward Talent, a
new brand to focus on higher volume IT markets using a lower cost
delivery solution, allowing ConSol Partners to continue to focus on
their niche sectors.
-- In the beginning of 2019 we have opened two new offices for
the become brand, in Brisbane, Australia and Auckland, New Zealand.
These offices are managed by the existing Australian team,
providing a more complete coverage of the local creative &
digital market.
We will continue to look at other opportunities to expand our
brands' presence and geographic coverage. We also anticipate more
bolt-on investments over the next few years, to accelerate the
entry into new service lines or regions for existing brands.
-- Improving productivity to generate better returns
We have identified three core areas where we can provide central
support to our brands to help them drive improvements in
productivity, being technology, learning & development and
marketing. The central team is there to help shape strategy, to
avoid duplication of effort and to ensure best practice is shared
and implemented across the Group. A key part of improving
productivity is to create more time for our consultants to engage
directly with clients and candidates. To ensure we are delivering a
"best in class" service we need to be constantly challenging and
improving our approach.
Investing in technology will help to automate certain processes,
increase efficiencies and free up time for consultants to spend
engaging directly with candidates and clients. By providing a
continuous learning & development culture, we are investing in
our own staff to help them deliver to their potential and to be the
best that they can. As our markets are generally seeing candidate
and skills shortages, the need to meaningfully engage with
candidates increases. This requires clear strategies for the use of
social media and other marketing channels.
We measure productivity by the conversion ratio (adjusted
operating profit divided by net fee income) and staff productivity
ratio (net fee income divided by total staff costs). With the
increase in central staff costs in 2018 and 2019, we expect to see
these ratios challenged in the short term before we start seeing
the benefits coming through from this investment.
Focus into 2019
Our focus for this year is simple: to improve the effectiveness
of our services; to identify ways to work smarter and harder; and
so deliver growth in both net fee income and profit across our
Group. Market forecasts are generally positive, albeit with
increasing geo-political risks already reducing business
confidence, in particular in the UK and Europe due to concerns over
Brexit. However, with the quality of our brands we are confident
about our ability to generate profitable growth and will continue
to invest for the long term.
Operating review
United Kingdom
GBPm 2018 2017 2016 2015 2014
----------------------------- ----- ----- ----- ----- -----
Revenue 85.7 86.7 70.1 62.7 65.8
Net fee income 23.7 23.4 19.0 18.4 15.9
Adjusted operating profit 2.9 2.6 2.1 3.1 3.1
% of Group net fee income 33% 34% 32% 37% 35%
Average number of employees 269 279 247 209 183
----------------------------- ----- ----- ----- ----- -----
Countries - UK
Brands - 4ward Talent, Ball & Hoolahan, Become, ConSol
Partners, FastTrack, Greycoat, LMA, McCall, Teamsales
Revenue reduced by 1% but net fee income was up 1% and adjusted
operating profit increased by 12% reflecting a mix of performances
across the UK businesses.
In professional services, LMA had a strong year, particularly in
the first half, with the successful integration of our previously
separate insurance brand in January. Headcount has continued to
grow and they have expanded their offering by moving into new areas
such as audit and change.
In IT, digital and design, ConSol Partners had a strong year.
The London office covers both the UK and Europe and in 2018 the
diversification into Europe has continued with UK placements
accounting for less than 30% of their business. At the end of 2018
they launched a new brand, 4ward Talent, to focus on the higher
volume IT markets using a lower cost delivery model to take
advantage of the opportunities we see there. In digital and design
both brands had a challenging year in the UK. However, action has
been taken to reduce costs and restructure the businesses which has
delivered improvements in the second half of the year and they are
well positioned for a more positive 2019.
In technical & industrial, FastTrack saw reduced net fee
income and profit after a weaker second half performance. While we
have seen some positive signs from investments made in new staff
and training programmes, further investments will be needed to
return to growth.
In domestic services, Greycoat delivered an improved second half
performance with higher productivity resulting in full year
operating profit growth ahead of the prior year. In retail (new
house sales), Teamsales had another solid year, although the start
of 2019 has been slow with Brexit uncertainties impacting on the UK
property market.
The uncertainty around the UK's exit from the European Union has
impacted on UK business confidence as we moved through 2018. Until
now we have seen limited direct impact on our business, but we
remain at risk from any UK economic slowdown or prolonged hiring
processes due to fears over Brexit uncertainty.
Continental Europe
GBPm 2018 2017 2016 2015 2014
----------------------------- ----- ----- ----- ----- -----
Revenue 96.1 98.8 92.0 75.2 76.8
Net fee income 15.6 16.5 16.8 14.5 15.0
Adjusted operating profit 4.7 6.1 6.6 5.7 5.0
% of Group net fee income 22% 23% 28% 30% 34%
Average number of employees 141 125 127 123 132
----------------------------- ----- ----- ----- ----- -----
Countries - Austria, Finland, Germany
Brands - Headway, Medikumppani
Revenue reduced by 3% and net fee income was down by 5% with
adjusted operating profit 23% lower, reflecting the impact of
regulation changes in Germany.
The region is dominated by the Headway businesses in Germany and
Austria. The Austrian business had another solid year but the
German businesses have been impacted by the regulatory changes that
applied during the year.
The German temporary staffing business saw the benefit from
investments made last year in training and marketing, with revenue
up 3% on prior year, however margins reduced due to the client mix
and new regulations. Cost reductions helped offset the margin
decline, so profit was in line with prior year. In the logistics
business the main impact has been from the equal pay regulations
which apply to temporary workers after nine months of assignment.
In line with client demand, workers have been transitioned ahead of
the equal pay limit and this increased the churn of workers. A
number of clients also took over higher numbers of workers as
permanent staff than normal, in response to the new regulations
that place an 18 month time limit on how long a worker can be on a
temporary contract with the same company.
The impact of these regulatory changes has now been fully
reflected with no further impact expected and the business is well
positioned to move forward in 2019, albeit with temporary staffing
numbers at the start of the 2019 lower than at the start of 2018.
The German staffing market is the fifth largest in the world and
remains highly attractive into the long term.
Our Finnish healthcare business, Medikumppani, performed in line
with the prior year. Their market remains challenging due to
candidate shortages.
The increase in the overall employee numbers reflects certain
staff moving onto Headway's payroll from client companies. This has
led to an increase in the recognised head count and net fee income
but is neutral at the operating profit level.
Asia Pacific
GBPm 2018 2017 2016 2015 2014
----------------------------- ------ ------ ----- ----- -----
Revenue 136.8 132.7 77.3 29.2 27.7
Net fee income 24.5 22.2 18.6 14.2 12.3
Adjusted operating profit 6.1 4.5 3.3 2.4 1.8
% of Group net fee income 34% 33% 32% 29% 28%
Average number of employees 1,023 816 795 673 545
----------------------------- ------ ------ ----- ----- -----
Countries - Australia, China, Hong Kong, India, Indonesia,
Japan, Malaysia, New Zealand, Philippines, Singapore, Thailand,
UAE, Vietnam
Brands - Become, BW&P, FINES, IMS, LMA, Monroe Consulting,
Rishworth Aviation, Skillhouse
Revenue grew by 3%, net fee income by 10% and adjusted operating
profit by 36%. This was primarily driven by Rishworth (aviation)
and IMS (offshore recruitment services) which both had strong
years, along with the turnaround from prior year losses at BW&P
(technical & industrial).
The Rishworth business has contributed strongly in the year,
benefitting from the investment in new bases made in 2017. However,
we see a more challenging market for 2019.
IMS, our RPO and offshore recruitment services business in
India, delivered strong growth with net fee income up by over 50%
on the prior year, primarily driven by clients in the UK and US.
They successfully opened an office in a new location in Jaipur in
the second half of the year, giving them a presence in a second
city and an enlarged talent pool to recruit from. In early 2019
they are moving three separate offices in Ahmedabad to a newly
built modern office, providing high quality space to expand
into.
In professional services, the LMA business in Singapore grew net
fee income again and with a strong second half performance is well
positioned for 2019.
In the IT, digital and design sector, Skillhouse in Japan was
negatively impacted by previously highlighted regulatory changes
which led to a reduction in its number of temporary workers. These
regulatory changes limit the amount of time workers can be on a
temporary contract with clients. The impact of these has now been
fully reflected and with no further impact expected the business is
well placed to rebuild in 2019, but from a lower starting point.
The become brand had a solid year, performing well in Australia and
Hong Kong. In January 2019 they opened two new offices in Brisbane,
Australia and Auckland, New Zealand.
In executive search, Monroe Consulting delivered mixed results
across South East Asia with an increase in net fee income but an
overall drop in operating profit. We were pleased to see an
improved second half performance and we remain confident in the
opportunities for this brand.
Americas
GBPm 2018 2017 2016 2015 2014
----------------------------- ----- ----- ----- ----- -----
Revenue 48.6 38.9 31.0 20.2 17.6
Net fee income 8.9 7.3 4.6 2.1 1.4
Adjusted operating profit 2.3 1.0 0.8 0.4 0.1
% of Group net fee income 12% 10% 8% 4% 3%
Average number of employees 175 132 98 76 68
----------------------------- ----- ----- ----- ----- -----
Countries - Chile, Mexico, Peru, USA
Brands - Alternattiva, ConSol Partners, Grupo Solimano, Monroe
Consulting, Pharmaceutical Strategies
Revenue grew by 25%, with net fee income up by 22% and adjusted
operating profit more than doubling. This reflects both a strong
performance by ConSol Partners in the US and the investment in
Grupo Solimano in July, which has strengthened our presence in
Latin America.
In the IT, digital and design sector, ConSol Partners saw a
strong rebound in the US, following a slow first half of 2017.
Demand continues to be positive in their niche markets and we are
looking at opportunities to expand our presence.
In Chile, Alternattiva recorded another year of growth as they
continue to develop their permanent and temporary businesses
alongside their core outsourcing operation.
In Peru, Grupo Solimano joined the Group in July and performed
in line with our expectations. This investment increases our
presence in Latin America and we see good opportunities for our
businesses in the region to work together to drive growth.
In Healthcare, Pharmaceutical Strategies in the US delivered a
stable year-on-year performance, but phasing issues in the last
quarter offset a stronger first half result. We continue to see
good potential for growth in this business and sector.
In Executive Search our Monroe Consulting business in Chile saw
good growth and continues to develop positively. In Mexico,
business was challenging and there was an increased loss. We are
taking the necessary measures to turn the business around and
continue to see good opportunities in the market.
Spencer Wreford
Chief Executive Officer
12 March 2019
Finance review
Overview
The Group has delivered another year of record profits with
adjusted profit before tax increasing 4% to GBP11.4m and reported
profit before tax increasing by 16% to GBP9.4m.
We have continued to make progress on reducing our debt levels
with adjusted net debt down to GBP17.1m (2017: GBP19.5m) and our
debt to debtors ratio reducing to 36% (2017: 45%), while also
continuing to invest in the business, including the investment in
Grupo Solimano in July 2018.
Income statement
% change % change
constant
2018 2017 currency**
Revenue (GBPm) 366.8 357.1 +3% +5%
Net fee income (GBPm) 72.3 69.4 +4% +6%
Operating profit (GBPm) 10.3 8.7 +18% +21%
Adjusted operating profit
(GBPm)* 12.3 11.6 +6% +8%
Profit before tax (GBPm) 9.4 8.1 +16% +18%
Adjusted profit before tax
(GBPm)* 11.4 11.0 +4% +6%
Diluted earnings per share
(p) 9.1 7.9 +15%
Adjusted diluted earnings
per share (p)* 12.1 12.5 -3%
* Adjusted to exclude amortisation of intangible assets
identified in business combinations, exceptional items, gain or
loss on disposal of businesses, fair value charges on acquisition
of non-controlling shares and in the case of earnings also adjusted
for any related tax. See note 7 for a reconciliation between profit
before tax and adjusted profit before tax.
** The constant currency movement is calculated by translating
the 2017 results at the 2018 exchange rates
Net fee income increased by 4%, 6% in constant currency.
Adjusted operating profit increased by 6%, 8% in constant currency,
reflecting growth across three of our four regions. A detailed
analysis by region is provided in the operating review. In order to
improve transparency we have shown central costs separately rather
than allocating these across the regions. Central costs have
increased to GBP3.7m (2017: GBP2.6m) reflecting investments in
central staff, including the appointment of Rhona Driggs as Chief
Operating Officer, increased consultancy costs for project work
around new technology, increased bonus provisions reflecting the
lower levels paid for 2017, and the inclusion in 2017 of a credit
for share based payments.
Adjusted profit before tax has increased by 4%, 6% in constant
currency, to GBP11.4m with the increase in operating profit being
partly offset by an increase in the net interest cost including
interest payable on tax charges following tax audits. Reported
profit before tax shows a greater increase of 16%, 18% in constant
currency, as the 2017 figure included a loss on the disposal of
businesses not repeated in 2018.
Adjusted, diluted earnings per share have fallen by 3% to 12.1p.
This reflects an increase in the allocation of profits to
non-controlling interests. Those businesses with higher
non-controlling ownership have performed strongly relative to the
rest of the Group in 2018 resulting in this increased allocation.
Reported diluted earnings per share increased by 15% to 9.1p.
Taxation
The total tax charge for the year is GBP3.6m (2017: GBP3.6m),
representing an effective tax rate of 38% (2017:44%). On an
adjusted basis, the effective rate is 34% (2017: 37%). Based on the
tax rates in the countries in which we operate, an average tax rate
of 30% (2017: 32%) would be expected. The effective rate is higher
than this due to a number of factors:
-- The level of non-deductible expenses in the year (GBP0.3m).
-- Withholding and dividend taxes resulting from overseas operations (GBP0.2m).
-- Deferred tax assets not recognised for certain tax losses around the Group (GBP0.3m).
Balance sheet
2018 2017
GBPm GBPm
Goodwill and intangible
assets 54.8 54.1
Trade and other receivables 57.3 53.1
Cash and cash equivalents 25.4 25.9
Other assets 3.6 2.4
----------------------------- ------- -------
Assets 141.1 135.5
----------------------------- ------- -------
Trade and other payables (41.9) (42.0)
Borrowings (37.2) (37.9)
Other liabilities (7.4) (6.7)
----------------------------- ------- -------
Liabilities (86.5) (86.6)
----------------------------- ------- -------
Net assets 54.6 48.9
----------------------------- ------- -------
Goodwill and intangible assets represent the largest assets on
the balance sheet and arise from the investments the Group has
made. As at 31 December 2018 the balance was GBP54.8m (2017:
GBP54.1m). The movements in the year were GBP2.0m arising on the
acquisition of Grupo Solimano (see note 9), GBP1.8m of amortisation
of intangible assets (2017: GBP1.8m), foreign exchange gains of
GBP0.6m (2017: loss of GBP1.0m), software additions of GBP0.2m
(GBP2017: GBP0.1m) and an impairment charge of GBP0.3m (2017:
GBPnil).
Trade and other receivables includes trade receivables of
GBP48.1m (2017: GBP43.2m), the increase being mainly due to the
investment in Grupo Solimano and the growth in revenue in the year.
Average debtor days for the Group in 2018 were 42 (2017: 41), with
debtor days at 31 December 2018 of 44 (2017: 40). The bad debt
expense during the year was GBP0.7m (2017: GBP0.8m).
Cash and borrowings are discussed in the financing section
below.
Cash flow
The Group is highly cash generative with a strong correlation
between pre-tax profits and cash flows. The Group measures its free
cash flow as a key performance indicator, and defines this as net
cash from operating activities per the cash flow statement
excluding cash flows related to pilot bond liabilities (see
financing section below).
2018 2017
GBPm GBPm
Net cash from operating activities
per cash flow statement 4.5 6.4
Cash flows related to pilot bonds 2.2 (2.3)
------------------------------------ ----- ------
Free cash flow 6.7 4.1
------------------------------------ ----- ------
Free cash flow (pre-tax) 9.6 9.6
------------------------------------ ----- ------
The increase in free cash flow in 2018 compared to 2017 reflects
lower tax payments in the year. As an international business the
Group's tax cash flows can be more volatile but as can be seen from
the table, pre-tax the Group's free cash flows are much more
stable. Free cash flow (pre-tax) for 2018 equates to 84% of
adjusted profit before tax (2017: 87%) demonstrating the Group's
ability to convert profits into cash.
In 2018 the Group utilised its free cash flow as follows:
2018 2017
GBPm GBPm
Free cash flow 6.7 4.1
Acquisition of businesses (net of
net funds acquired) (1.9) (5.6)
Capital expenditure (1.5) (0.9)
Dividends paid to shareholders (0.6) (0.6)
Dividends paid to non-controlling
interests (0.4) (0.1)
Purchase of own shares (0.4) (0.1)
Other 0.5 (0.6)
-------------------------------------- ------ ------
Reduction/(increase) in adjusted net
debt 2.4 (3.8)
-------------------------------------- ------ ------
Acquisition of businesses principally relates to the investment
in Grupo Solimano (see below for more details) with cash outflows
of GBP2m offset by GBP0.2m of net funds within the acquired
business.
Capital expenditure increased to GBP1.5m reflecting investments
in offices in India. Dividends paid to non-controlling interests
were GBP0.4m and there was a cash outflow of GBP0.4m for the
purchase of own shares which were subsequently transferred to the
Empresaria Employee Benefit Trust (EBT). As at 31 December 2018 a
total of 576,204 shares are held in the EBT to be used to satisfy
the exercise of options vested under the Company's long term
incentive plans. As at 31 December 2018, 2.0m options had vested
but not been exercised.
Financing
The Group's treasury function is managed centrally and the
Group's financial risk management policies are set out in note 24
of the annual report.
2018 2017
GBPm GBPm
Cash and cash equivalents 25.4 25.9
Pilot bonds (5.3) (7.5)
--------------------------- ------- -------
Adjusted cash 20.1 18.4
--------------------------- ------- -------
Overdraft facilities (22.0) (20.4)
Invoice financing (9.7) (9.7)
Bank loans (5.5) (7.8)
--------------------------- ------- -------
Total borrowings (37.2) (37.9)
--------------------------- ------- -------
Adjusted net debt (17.1) (19.5)
--------------------------- ------- -------
Adjusted net debt at 31 December 2018 reduced to GBP17.1m (2017:
GBP19.5m). Adjusted net debt excludes cash of GBP5.3m (2017:
GBP7.5m) held to match pilot bonds within the Rishworth Aviation
business. Where required by the client, pilot bonds are taken at
the start of the pilot's contract and are repayable to the pilot or
the client during the course of 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, and that to hold
these is a client requirement, we exclude cash equal to the amount
of the bonds when calculating our adjusted net debt measure. At the
start of 2019 a major client has removed the requirement to hold
bonds and as a result an additional GBP1.9m of bonds will be repaid
in 2019. This has no impact on our adjusted net debt measure.
During 2018 the month end average adjusted net debt position was
GBP19.0m (2017: GBP21.3m) with a high of GBP21.2m at 28 February
(2017: GBP25.4m at 31 May) and a low of GBP17.1m at 31 December
(2017: GBP18.8m at 31 January).
Our debt to debtors ratio (adjusted net debt as a percentage of
trade receivables) has reduced to 36% (2017: 45%) reflecting the
reduction in the levels of debt in the year.
We continue to be focused on reducing our debt levels with the
medium term aim of reducing the debt to debtor ratio to 25%. In the
short term we expect to see our adjusted net debt reduce and
currently do not plan to make any significant investments that
would increase this.
Total borrowings were GBP37.2m (2017: GBP37.9m) being mostly
bank overdrafts (GBP22.0m) and invoice financing (GBP9.7m). The
Group's borrowings are principally held to fund working capital
requirements and are predominantly current borrowings due within
one year. As at 31 December 2018, GBP5.2m of borrowings are shown
as non-current, the majority of which is the amount drawn under the
Group's revolving credit facility.
Adjusted cash totalled GBP20.1m excluding GBP5.3m held respect
of pilot bonds. Under IFRS it is a requirement to show overdraft
and cash balances gross, even where they are part of a formal
pooling arrangement. The adjusted cash balance of GBP20.1m includes
GBP5.1m in respect of such arrangements where the net position is
overdrawn.
The Group maintains a range of facilities to manage its working
capital and financing requirements. At 31 December 2018 the Group
had facilities totalling GBP49.4m (2017: GBP50.5m).
2018 2017
GBPm GBPm
UK facilities
- Overdrafts 7.5 8.6
- Revolving credit facility 10.0 10.0
- Term loan - 2.0
- Invoice financing facility 13.0 13.0
----- -----
Total UK facilities 30.5 33.6
Continental Europe facilities 12.9 12.7
Asia Pacific facilities 1.5 1.3
Americas facilities 4.5 2.9
----- -----
49.4 50.5
----- -----
Undrawn facility (excluding invoice
financing) 16.7 19.1
----- -----
An additional GBP5.0m accordion arrangement, connected to the
revolving credit facility, has been agreed in principle with the
bank, but would need new credit approval for any draw down.
During the year a German term loan of EUR5m, which was due to be
repaid in 2018, was refinanced by extending the German overdraft by
EUR5m, and the Group's $1.5m UK overdraft facility was cancelled
following the implementation of a local $2m facility in the US in
2017. The UK term loan was fully repaid in the year in line with
its payment schedule. The invoice financing facilities in Chile
have been increased reflecting their business growth.
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 as at 31
December 2018 are as follows:
Covenant Target Actual
Net debt: EBITDA < 2.5 times 0.6
Interest cover > 5.0 times 17.0
Debt service cover > 1.25 times 4.4
Management equity
The management equity philosophy is a key part of our business
model. The model typically operates as follows:
Acquisition of shares
At least 51% of shares are held by Empresaria with the balance
being held by management, either having been retained when
Empresaria initially invested, or subsequently acquired by them at
fair value. Shares retained by management upon initial investment
typically have no material changes to their rights and are termed
first generation shares. Shares subsequently sold to management,
either because first generation shares have been acquired by
Empresaria or where issued to incentivise the next tier of
management, are termed second generation shares. Second generation
shares are acquired by management at a fair value which is reduced
to make it more affordable by setting a profit threshold level such
that these shares only create value once that threshold is
exceeded. Second generation shares typically have restrictions such
as limited or no entitlement to dividends.
Holding period
Shares can be offered for sale after a specified holding period,
typically four or five years. Shares cannot all be sold in one year
requiring a minimum of two or three years for full disposal. While
management can choose to offer their shares for sale, the decision
to purchase these is solely at the discretion of Empresaria and
there are no put or call options in place. Empresaria's decision to
buy shares is based on each specific situation, with consideration
given to management succession plans, recent trading performance
and the potential of the business in the next few years.
Valuation
The valuation basis is agreed up front and documented in the
shareholders' agreements. The valuation is typically based on the
average profit after tax for the previous three years using
Empresaria's trading multiple (share price divided by adjusted EPS)
less 0.5 with a cap of 10, to ensure that it is earnings accretive
to Empresaria's shareholders.
Based on the Group's results for the year ended 31 December
2018, and using the valuation mechanisms in shareholders' agreement
but ignoring holding period requirements, the potential payment to
acquire non-controlling interests in full in 2019 would be GBP11.0m
based on Empresaria's share price at close on 8 March 2019, and
could be up to a maximum of GBP14.4m using the maximum multiple
that could be applied. 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 such as 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 our adjusted profit and earnings
measures.
During the period the Group increased its investment in LMA
Singapore from 60% to 75%, in Teamsales from 95% to 96.7% in IMS
from 71% to 71.4%, in Monroe Indonesia from 90% to 100% and in
BW&P from 88.4% to 98.5%. Total consideration was less than
GBP0.1m.
Investment in Grupo Solimano
In July the Group invested in 60% of the shares in Grupo
Solimano, an established provider of outsourced and temporary
staffing services in Peru. Total consideration is GBP2.2m,
comprising cash payments of GBP2.0m in 2018 and a further GBP0.2m
expected to be paid in 2019. The remaining 40% interest is held by
senior management 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
four years before they can be offered for sale over a minimum of 3
years with no obligation on the Group to acquire them.
On acquisition, goodwill and intangible assets totalling GBP2.0m
have been recognised. More details are provided in note 9.
Dividend
During the year, the Group paid a dividend of 1.32p per share in
respect of the year ended 31 December 2017. For the year ended 31
December 2018, the Board is proposing a dividend of 2.0p per share,
an increase of 52% and demonstrating the strength of the Group's
balance sheet and the Board's confidence in the Group's prospects.
Subject to shareholder approval at the Annual General Meeting, the
dividend will be paid on 31 May 2019 to shareholders on the
register on 10 May 2019.
Going concern
The Board has undertaken a recent and thorough review of the
Group's budget, forecasts and associated risks and sensitivities.
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.
Tim Anderson
Group Finance Director
12 March 2019
Consolidated income statement
2018 2017
Note GBPm GBPm
Revenue 2 366.8 357.1
Cost of sales (294.5) (287.7)
Net fee income 2 72.3 69.4
Administrative costs (including GBP0.7m (2017: GBP0.8m) in respect of trade receivable
impairment
losses) (60.0) (57.8)
-------- --------
Adjusted operating profit 2 12.3 11.6
Exceptional items 3 (0.3) -
Fair value charge on acquisition of non-controlling shares 4 - (0.3)
Loss on business disposal - (0.9)
Amortisation of intangible assets identified in business combinations (1.7) (1.7)
-------- --------
Operating profit 2 10.3 8.7
-------- --------
Finance income 5 0.2 0.1
Finance costs 5 (1.1) (0.7)
-------- --------
Net finance costs 5 (0.9) (0.6)
Profit before tax 9.4 8.1
Taxation 6 (3.6) (3.6)
Profit for the year 5.8 4.5
-------- --------
Attributable to:
Owners of Empresaria Group plc 4.6 4.1
Non-controlling interests 1.2 0.4
-------- --------
5.8 4.5
-------- --------
Earnings per share:
Earnings per share (pence):
Basic 9.2 8.0
Diluted 8 9.1 7.9
Adjusted earnings per share (pence):
Basic 12.2 12.6
Diluted 8 12.1 12.5
Consolidated statement of comprehensive income
2018 2017
GBPm GBPm
Profit for the year 5.8 4.5
------ ------
Other comprehensive income
Items that may be reclassified subsequently to the income statement:
Exchange differences on translation of foreign operations 0.8 (1.2)
Items that will not be reclassified to the income statement:
Exchange differences on translation of non-controlling interests in foreign operations (0.1) (0.1)
------ ------
Other comprehensive income/(loss) for the year 0.7 (1.3)
Total comprehensive income for the year 6.5 3.2
------ ------
Attributable to:
Owners of Empresaria Group plc 5.4 2.9
Non-controlling interests 1.1 0.3
------ ------
6.5 3.2
------ ------
Consolidated balance sheet
2018 2017
Note GBPm GBPm
ASSETS
Non-current assets
Property, plant and equipment 2.1 1.4
Goodwill 10 37.1 35.9
Other intangible assets 17.7 18.2
Deferred tax assets 1.5 1.0
------ ------
58.4 56.5
------ ------
Current assets
Trade and other receivables 13 57.3 53.1
Cash and cash equivalents 12 25.4 25.9
------ ------
82.7 79.0
------ ------
Total assets 141.1 135.5
------ ------
LIABILITIES
Current liabilities
Trade and other payables 14 41.9 42.0
Current tax liabilities 3.2 2.6
Borrowings 11,12 32.0 36.6
------ ------
77.1 81.2
------ ------
Non-current liabilities
Borrowings 11,12 5.2 1.3
Deferred tax liabilities 4.2 4.1
------ ------
9.4 5.4
------ ------
Total liabilities 86.5 86.6
------ ------
Net assets 54.6 48.9
------ ------
EQUITY
Share capital 2.4 2.4
Share premium account 22.4 22.4
Merger reserve 0.9 0.9
Retranslation reserve 5.8 5.0
Equity reserve (7.7) (7.5)
Other reserves (0.7) (0.7)
Retained earnings 23.2 19.6
------ ------
Equity attributable to owners
of Empresaria Group plc 46.3 42.1
Non-controlling interests 8.3 6.8
------ ------
Total equity 54.6 48.9
------ ------
Consolidated statement of changes in equity
Equity attributable to owners of Empresaria Group plc
------------------------------------------------------------------------------------
Share
Share premium Merger Retranslation Equity Other Retained Non-controlling Total
capital account reserve reserve reserve reserves earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 31
December 2016 2.4 22.4 0.9 6.1 (7.3) (0.4) 16.2 40.3 6.4 46.7
Profit for the
year - - - - - - 4.1 4.1 0.4 4.5
Exchange
differences
on translation
of foreign
operations - - - (1.1) - (0.1) - (1.2) (0.1) (1.3)
-------- -------- -------- -------------- -------- --------- --------- ------ ---------------- -------
Total
comprehensive
income for the
year - - - (1.1) - (0.1) 4.1 2.9 0.3 3.2
Dividend paid
to owners of
Empresaria
Group
plc - - - - - - (0.6) (0.6) - (0.6)
Dividend paid
to
non-controlling
interests - - - - - - - - (0.1) (0.1)
Acquisition
of
non-controlling
shares - - - - (0.2) - - (0.2) 0.2 -
Purchases of
own shares in
Employee
Benefit
Trust - - - - - - (0.1) (0.1) - (0.1)
Share-based
payments - - - - - (0.2) - (0.2) - (0.2)
Balance at 31
December 2017 2.4 22.4 0.9 5.0 (7.5) (0.7) 19.6 42.1 6.8 48.9
-------- -------- -------- -------------- -------- --------- --------- ------ ---------------- -------
Profit for the
year - - - - - - 4.6 4.6 1.2 5.8
Exchange
differences
on translation
of foreign
operations - - - 0.8 - - - 0.8 (0.1) 0.7
-------- -------- -------- -------------- -------- --------- --------- ------ ---------------- -------
Total
comprehensive
income for the
year - - - 0.8 - - 4.6 5.4 1.1 6.5
Dividend paid
to owners of
Empresaria
Group
plc - - - - - - (0.6) (0.6) - (0.6)
Dividend paid
to
non-controlling
interests - - - - - - - - (0.4) (0.4)
Acquisition
of
non-controlling
shares - - - - (0.2) - - (0.2) 0.2 -
Purchases of
own shares in
Employee
Benefit
Trust - - - - - - (0.4) (0.4) - (0.4)
Business
combination
(see note 9) - - - - - - - - 0.6 0.6
Share-based
payments - - - - - - - - - -
Balance at 31
December 2018 2.4 22.4 0.9 5.8 (7.7) (0.7) 23.2 46.3 8.3 54.6
-------- -------- -------- -------------- -------- --------- --------- ------ ---------------- -------
Consolidated cash flow statement
2018 2017
GBPm GBPm
Profit for the year 5.8 4.5
Adjustments for:
Depreciation and software amortisation 1.0 1.0
Amortisation of intangible assets identified in
business combinations 1.7 1.7
Exceptional items (non-cash) 0.3 -
Loss on business disposal - 0.9
Share-based payments - (0.2)
Taxation charge 3.6 3.6
Net finance costs 0.9 0.6
------ ------
13.3 12.1
Increase in trade and other receivables (2.2) (2.8)
(Decrease)/increase in trade and other payables
(including pilot bonds outflow of GBP2.2m (2017:
inflow of GBP2.3m)) (2.7) 3.3
Cash generated from operations 8.4 12.6
Interest paid (1.0) (0.7)
Income taxes paid (2.9) (5.5)
------ ------
Net cash from operating activities 4.5 6.4
------ ------
Cash flows from investing activities
Consideration paid for business acquisitions (net
of cash acquired) (1.7) (5.6)
Consideration received for business disposals 0.1 0.1
Purchase of property, plant and equipment, and
software (1.5) (0.9)
Finance income 0.2 0.1
------ ------
Net cash used in investing activities (2.9) (6.3)
------ ------
Cash flows from financing activities
Increase in overdrafts 1.5 15.3
Proceeds from bank loans 4.0 0.1
Repayment of bank loans (6.4) (9.2)
Increase in invoice discounting 0.1 0.7
Purchase of own shares in Employee Benefit Trust (0.4) (0.1)
Dividends paid to owners of Empresaria Group plc (0.6) (0.6)
Dividends paid to non-controlling interests (0.4) (0.1)
------ ------
Net cash (outflow)/inflow from financing activities (2.2) 6.1
------ ------
Net (decrease)/increase in cash and cash equivalents (0.6) 6.2
Effect of foreign exchange movement 0.1 (0.6)
Cash and cash equivalents at beginning of the
year 25.9 20.3
Cash and cash equivalents at end of the year 25.4 25.9
------ ------
2018 2017
GBPm GBPm
Bank overdrafts at beginning of the year (20.4) (5.1)
Increase in the year (1.5) (15.3)
Effect of foreign exchange movement (0.1) -
------- -------
Bank overdrafts at end of the year (22.0) (20.4)
Cash, cash equivalents and bank overdrafts at
end of the year 3.4 5.5
------- -------
1 Basis of preparation and general information
The financial information has been abridged from the audited
financial information for the year ended 31 December 2018.
The financial information set out above does not constitute the
Company's consolidated statutory accounts for the years ended 31
December 2018 or 2017, but is derived from those accounts.
Statutory accounts for 2017 have been delivered to the Registrar of
Companies and those for 2018 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
2017 and 2018, as amended when relevant to reflect the adoption of
new standards, amendments and interpretations which became
effective in the year. New standards include IFRS 9 Financial
Instruments and IFRS 15 Revenue from Contracts with Customers.
These changes have not had a significant impact on the financial
statements.
While 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 and revenue analysis
Information reported to the Group's Executive Committee,
considered to be the 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 business 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
2018
Continental Asia Central Intragroup
UK Europe Pacific Americas costs eliminations Total
GBPm GBPm GBPm GBPm GBPm
Revenue 85.7 96.1 136.8 48.6 - (0.4) 366.8
Net fee income 23.7 15.6 24.5 8.9 - (0.4) 72.3
Adjusted operating
profit* 2.9 4.7 6.1 2.3 (3.7) - 12.3
Operating profit 2.4 4.5 5.4 1.7 (3.7) - 10.3
* Adjusted operating profit is stated before amortisation of
intangible assets identified in business combinations, exceptional
items, gain or loss on disposal of businesses and fair value charge
on acquisition of non-controlling shares.
Revenue of Continental Europe includes GBP79.9m from Germany and
revenue of Asia Pacific includes GBP100.8m from New Zealand.
The analysis of the Group's revenue and net fee income by client
destination is set out below:
Year ended 31 December
2018
Continental Asia Rest Intragroup
UK Europe Pacific Americas of World eliminations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 108.6 124.6 74.0 52.6 7.4 (0.4) 366.8
Net fee income 23.5 20.9 16.3 11.3 0.7 (0.4) 72.3
The analysis of the Group's business by geographic origin is set
out below:
Year ended 31 December 2017
Continental Asia Central
UK Europe Pacific Americas costs Total
GBPm 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* 2.6 6.1 4.5 1.0 (2.6) 11.6
Operating profit 2.1 5.9 2.8 0.5 (2.6) 8.7
* Adjusted operating profit is stated before amortisation of
intangible assets identified in business combinations, exceptional
items, gain or loss on disposal of businesses and fair value charge
on acquisition of non-controlling shares.
Revenue of Continental Europe includes GBP83.9m from Germany and
revenue of Asia Pacific includes GBP97.5m from New Zealand.
The analysis of the Group's revenue and net fee income by client
destination is set out below:
Year ended 31 December 2017
Continental Asia
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
3 Exceptional items
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.
2018 2017
GBPm GBPm
Impairment of goodwill 0.3 -
----- -----
0.3 -
----- -----
An impairment charge of GBP0.3m related to a business in the
Asia Pacific region has been recognised in 2018. Further details
can be found in note 10.
4 Fair value charge on acquisition of non-controlling shares
In line with the Group's accounting policies, where amounts paid
for non-controlling interest shares exceed the fair value of the
equity acquired, the excess is charged to the income statement.
This typically occurs where there are restrictions over the rights
of the shares as is often the case for second generation equity.
The Group's management equity philosophy is described in more
detail in the finance review.
2018 2017
GBPm GBPm
Fair value on acquisition of non-controlling shares - 0.3
------ -----
- 0.3
------------------------------------------------------------ -----
Further details on the non-controlling shares acquired in the
year are provided in the finance review.
5 Finance income and costs
2018 2017
GBPm GBPm
Finance income
Bank interest receivable 0.2 0.1
------ ------
0.2 0.1
------ ------
Finance costs
Invoice financing (0.2) (0.2)
Bank loans and overdrafts (0.7) (0.5)
Interest on tax payments (0.2) -
------ ------
(1.1) (0.7)
------ ------
Net finance cost (0.9) (0.6)
------ ------
6 Taxation
The tax expense for the year is as follows:
2018 2017
GBPm GBPm
Current tax
Current year income tax expense 4.3 3.8
Adjustment in respect of prior years (0.1) -
------ ------
Total current tax expense 4.2 (3.8)
------ ------
Deferred tax
Deferred tax credit - on origination and reversal
of temporary differences (0.6) (0.2)
------ ------
Total income tax expense in the income statement 3.6 3.6
------ ------
7 Reconciliation of adjusted profit before tax to Profit before tax
2018 2017
GBPm GBPm
Profit before tax 9.4 8.1
Exceptional items 0.3 -
Fair value on acquisition of non-controlling shares - 0.3
Loss on business disposal - 0.9
Amortisation of intangible assets identified in
business combinations 1.7 1.7
----- -----
Adjusted profit before tax 11.4 11.0
----- -----
8 Earnings per share
Basic earnings per share is assessed by dividing the earnings
attributable to the owners of Empresaria Group plc by the weighted
average number of shares in issue during the year. Diluted earnings
per share is calculated as for basic earnings per share but
adjusting the weighted average number of shares for the diluting
impact of shares that could potentially be issued. For 2018 and
2017 these are all related to share options. Reconciliations
between basic and diluted measures are given below.
The Group also presents adjusted earnings per share which it
considers to be a key measure of the Group's performance. A
reconciliation of earnings to adjusted earnings is provided
below.
2018 2017
GBPm GBPm
Earnings
Earnings attributable to equity holders of the
parent 4.6 4.1
Adjustments:
Exceptional items 0.3 -
Fair value charge on acquisition of non-controlling
shares - 0.3
Loss on business disposal - 0.9
Amortisation of intangible assets identified in
business combinations 1.7 1.7
Tax on the above (0.3) (0.4)
Non-controlling interests in respect of all the
above (0.1) (0.2)
--------- ---------
Adjusted earnings 6.2 6.4
--------- ---------
Number of shares Millions Millions
Weighted average number of shares- basic 50.6 50.9
Dilution effect of share options 0.4 0.5
--------- ---------
Weighted average number of shares- diluted 51.0 51.4
--------- ---------
Earnings per share Pence Pence
Basic 9.2 8.0
Dilution effect of share options (0.1) (0.1)
--------- ---------
Diluted 9.1 7.9
--------- ---------
Adjusted earnings per share Pence Pence
Basic 12.2 12.6
Dilution effect of share options (0.1) (0.1)
--------- ---------
Diluted 12.1 12.5
--------- ---------
The weighted average number of shares (basic) has been
calculated as the weighted average number of shares in issue during
the year plus the number of share options already vested less the
weighted average number of shares held by the Empresaria Employee
Benefit Trust. The Trustees have waived their rights to dividends
on the shares held by the Empresaria Employee Benefit Trust.
9 Business combination
On 11 July 2018 the Group invested in 60% of the shares in Grupo
Solimano S. A. C., an established provider of outsourced and
temporary staffing services in Peru. This acquisition strengthens
the Group's presence in the high-potential Latin American staffing
market. The remaining 40% of shares have been retained by
management in line with the Group's management equity
philosophy.
The total fair value of consideration is expected to be GBP2.2m,
including cash paid during 2018 of GBP2.0m and GBP0.2m of
additional cash consideration expected to be paid in 2019, subject
to the audit of Grupo Solimano's results for the year ended 31
December 2018.
The fair value of assets and liabilities, at 100%, as at the
date of the business combination are set out in the table
below:
Fair value
GBPm
Intangible assets recognised on acquisition
Customer relations 0.6
Trade name and brands 0.2
-----------
0.8
Property, plant and equipment 0.1
Trade and other receivables 2.4
Cash at bank 0.4
Trade and other payables (1.8)
Bank Loan (0.2)
Deferred tax liability recognised on intangible
assets (0.2)
Deferred tax assets 0.1
-----------
Net assets 1.6
Non-controlling interest (at 40%) (0.6)
Goodwill 1.2
Total 2.2
-----------
The non-controlling interest at acquisition is assessed as the
proportionate share in the recognised amounts of the acquiree's
identifiable net assets.
Acquisition related costs of GBP0.1m have been incurred and are
recognised directly in the income statement within administrative
costs.
Goodwill comprises unrecognised intangible assets in respect of
its employees and their close understanding of their client's
requirements which are of great importance in the recruitment
business . The subsidiaries of Grupo Solimano S. A. C. are run as
one operating unit and the goodwill on acquisition has therefore
been allocated to the business as a whole and not to a lower level.
None of the goodwill is deductible for tax purposes.
All payments made for the shares are considered to be part of
the acquisition consideration. There are no contingent payments
which meet the requirements to be assessed as a separate
transaction, including in respect of post-acquisition employment
services.
In 2018 the investment has contributed GBP7.6m to the Group's
revenue, and GBP0.1m to the Group's profit. If the investment had
been completed on 1 January 2018 the Group's revenue for the year
would have been GBP375.1m and the Group's profit for the year would
have been GBP6.0m.
10 Goodwill
2018 2017
GBPm GBPm
At 1 January 35.9 36.0
Business combinations (see note 9) 1.2 -
Impairment charge (0.3) -
Foreign exchange movement 0.3 (0.1)
------ ------
At 31 December 37.1 35.9
------ ------
Goodwill is reviewed and tested for impairment on an annual
basis or more frequently if there is an indication that goodwill
might be impaired. Goodwill has been tested for impairment by
comparing the carrying amount of the group of cash generating units
(CGUs) the goodwill has been allocated to, with the recoverable
amount of those CGUs. The recoverable amounts of the CGUs are
considered to be their value in use.
The key assumptions in assessing value in use are as
follows:
Operating profit and pre-tax cash flows
The operating profit and pre-tax cash flow is based on the 2019
budgets approved by the Group's Board. These budgets are
extrapolated using short-term industry growth rate forecasts and
long-term growth rates and margins that are consistent with the
business plans approved by the Group's Board. These cash flows are
discounted to present value to assess the value in use.
Discount rates
The pre-tax, country specific rates used to discount the
forecast cash flows range from 8% to 16% (2017: 8% to 15%)
reflecting current local market assessments of the time value of
money and the risks specific to the relevant business. These
discount rates reflect the estimated industry weighted average cost
of capital in each market and are based on the Groups weighted
average cost of capital adjusted for local factors.
Pre-tax discount rates used by operating segment are as
follows:
UK: 9.4%
Continental Europe: 8.3%
to 8.6%
Asia Pacific: 8% to 16%
Americas: 11% to 13%
Growth rates
The growth rates used to extrapolate beyond the most recent
budgets and forecasts and to determine terminal values are based
upon long term average GDP growth forecasts for the relevant
country. Growth rates are capped at 6% for the purposes of this
calculation and range from 0.5% to 6.0%. GDP growth is a key driver
of our business, and is therefore an appropriate assumption in
developing long-term forecasts.
Growth rates used for various cash generating units in operating
segments are as follows:
UK: 1.6%
Continental Europe: 1.3% to
1.4%
Asia Pacific: 0.5% to 6.0% (capped)
Americas: 1.6% to 5.0%
As a result of the impairment reviews carried out at 31 December
2018, an impairment charge of GBP0.3m has been recognised for a
business in the Asia Pacific region.
As part of the impairment review reasonably possible changes in
the growth rate and discount rate assumptions have been considered
to assess the impact on the recoverable amount of each business.
Were the long-term growth rate to reduce to nil no impairment
charge would be recorded, while if the discount rate were to
increase by 2% an impairment charge of GBP0.9m would be recorded in
respect of one business in the Americas region.
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 is allocated across the Group's
operating segments as follows:
2018 2017
GBPm GBPm
Goodwill by region
UK 11.9 11.9
Continental Europe 14.6 14.5
Asia Pacific 6.0 6.3
Americas 4.6 3.2
----- -----
37.1 35.9
----- -----
Included within the above at 31 December 2018 are significant
goodwill balances as set out in the table below along with the
relevant discount rate and growth rate assumptions:
Discount
Goodwill rate Growth rate
GBPm % %
Headway 13.1 8.3 1.4
ConSol Partners 4.2 9.4 3.0
Rishworth Aviation 3.8 11.0 3.6
--------- --------- ------------
11 Borrowings
2018 2017
GBPm GBPm
Current
Bank overdrafts 22.0 20.4
Amounts related to invoice financing 9.7 9.7
Bank loans 0.3 6.5
----- -----
32.0 36.6
----- -----
Non-current
Bank loans 5.2 1.3
----- -----
5.2 1.3
----- -----
Borrowings 37.2 37.9
----- -----
The following key bank facilities are in place at 31 December
2018:
A revolving credit facility of GBP10.0m, expiring in June 2021.
As at 31 December 2018 the amount outstanding is GBP5.0m (2017:
GBP1.0m). Interest is payable at 1.5% plus LIBOR or EURIBOR.
A UK term loan of GBP2.0m was repaid during the year (2017:
GBP2.0m). Interest was payable at 1.5% above the UK base rate.
A German term loan of EUR5.0m expired in February 2018 (2017:
EUR5.0m) and was replaced by an overdraft facility. Interest was
payable at 3% above EURIBOR.
Overdraft facilities are in place in the UK with a limit of
GBP7.5m. The balance on this facility as at 31 December 2018 was
GBP3.9m (2017: GBP4.1m). The interest rate was fixed at 1% above
applicable currency base rates. A $2.0m overdraft facility to
provide working capital funding to Pharmaceutical Strategies had a
balance as at 31 December 2018 of $0.8m (2017: $1.0m). Interest on
this USD facility is payable at 2% over LIBOR. A EUR13m (2017:
EUR8.0m) overdraft facility is also in place in Germany. This
overdraft facility increased by EUR5m on the expiration of the term
loan. The balance at 31 December 2018 was EUR7.8m (2017: EUR4.8m).
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.
There is an invoice financing facility in the UK of GBP13.0m
(2017: GBP13.0m). As at 31 December 2018 the amount outstanding was
GBP8.4m (2017: GBP8.2m). Interest is payable at 1.47% over UK base
rate. There are also invoice financing facilities in Chile of
GBP2.5m (2017: GBP1.5m). As at 31 December 2018 the amount
outstanding was GBP1.3m (2017: GBP1.5m). Interest is payable at
approximately 6%.
Other overseas overdraft and loans had interest rates of between
1.0% and 7.4%.
12 Net debt
a) Net debt
2018 2017
GBPm GBPm
Borrowings (37.2) (37.9)
Cash and cash equivalents 25.4 25.9
------- -------
Net debt (11.8) (12.0)
------- -------
Cash and cash equivalents at 31 December 2018 includes cash of
GBP380,000 (2017: GBP253,000) held by a subsidiary in China which
is subject to currency exchange restrictions.
b) Adjusted net debt
2018 2017
GBPm GBPm
Cash and cash equivalents 25.4 25.9
Less cash held in respect of pilot bonds (5.3) (7.5)
------- -------
Adjusted cash 20.1 18.4
Borrowings (37.2) (37.9)
------- -------
Adjusted net debt (17.1) (19.5)
------- -------
The Group presents adjusted net debt as its principle debt
measure. Adjusted net debt is equal to net debt excluding cash held
in respect of pilot bonds within the Rishworth Aviation business.
Where required by the client, pilot bonds are taken at the start of
the pilot's contract and are repayable to the pilot or the client
during the course of 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, and that to hold these is a
client requirement, cash equal to the amount of the bonds is
excluded in calculating adjusted net debt.
c) Movement in adjusted net debt
2018 2017
GBPm GBPm
As at 1 January (19.5) (15.7)
Net (decrease)/increase in cash and cash equivalents
per consolidated cash flow statement (0.6) 6.2
Borrowings in business acquired (0.2) -
Increase in overdrafts and loans 0.9 (6.2)
Increase in invoice financing (0.1) (0.7)
Foreign exchange movement 0.2 (0.8)
Adjusted for decrease/(increase) in cash held
in respect of pilot bonds 2.2 (2.3)
------- -------
As at 31 December (17.1) (19.5)
------- -------
13 Trade and other receivables
2018 2017
GBPm GBPm
Current
Gross trade receivables 49.2 44.0
Less provision for impairment
of trade receivables (1.1) (0.8)
------ ------
Trade receivables 48.1 43.2
Prepayments 1.9 1.5
Accrued income 3.3 3.1
Corporation tax receivable 1.2 1.8
Other receivables 2.8 3.5
------ ------
57.3 53.1
------ ------
Trade receivables include GBP34.8m (2017: GBP31.7m) on which
security has been given as part of bank facilities.
14 Trade and other payables
2018 2017
GBPm GBPm
Current
Trade payables 2.2 2.1
Other tax and social security 8.1 8.4
Pilot bonds 5.3 7.5
Client deposits 0.9 0.7
Temporary recruitment worker wages 3.9 3.9
Other payables 1.9 2.0
Accruals 19.4 17.4
Deferred consideration 0.2 -
----- -----
41.9 42.0
----- -----
The pilot bonds represent unrestricted funds held by Rishworth
Aviation at the request of clients that are repayable to the pilot
over the course of a contract, typically between three and five
years. If the pilot terminates their contract early, the
outstanding bond is payable to the client. For this reason the
bonds are shown as a current liability. As at 31 December 2018, if
the bonds were to be repaid in line with existing contracts,
GBP2.9m (2017: GBP4.5m) would be repayable in more than one year.
In 2019, one of Rishworth's largest clients has confirmed that it
will no longer require bonds to be held. As a result an additional
GBP1.9m of the bonds outstanding as at 31 December 2018 are
expected to be repaid in 2019.
15 Dividends
2018 2017
GBP000 GBP000
Amount recognised as distribution to equity holders in the year:
Final dividend for the year ended 31 December 2017 of 1.32p (2016: 1.15p) per share 644 564
Proposed final dividend for the year ended 31 December 2018 is 2.0p (2017: 1.32p) per share 969 644
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 news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SFAEFEFUSEDD
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