Empresaria Group plc - Results for the six months ended 30 June 2011

Empresaria Group plc ("Empresaria" or the "Group") has experienced a challenging first half of the year, particularly in Germany, the Group's largest market, where new labour agreements had a material impact on gross margins. The Group continued to make progress in other regions, particularly in Asia where it experienced strong growth.


  • Revenue increased 1% to £105.2m (June 2010: £104.4m)
  • Permanent revenue increased 26% and temporary staffing revenues decreased 1% year on year
  • Net fee income/gross profit level with prior year at £22.4m
  • International diversification with 65% of net fee income from outside the UK (June 2010: 67%)
  • Adjusted profit before tax* of £1.2m (June 2010: £2.6m)
  • Exceptional provision of £3.0m has been made for potential retrospective claims that may arise as a result of court rulings in Germany
  • Loss before tax of £1.9m (June 2010: profit of £2.3m)
  • Adjusted earnings per share# of 0.9p (June 2010: 1.9p)
  • Net debt at period end of £8.5m (June 2010: £7.6m)

* adjusted to exclude amortisation of intangible assets, exceptional items and movements in the fair values of put and call options.

# earnings per share is from continuing and discontinued operations

Chief Executive Miles Hunt said:

"Overall, Group performance in the period did not meet our expectations. Although we grew Revenue slightly, Net fee income was flat during the period, albeit with strong performances from individual companies, particularly within the Asia region. Investments in new start ups and office openings in Asia and Australia did impact on profitability during the period, as planned, but are all developing positively. The Group faced unexpected challenges in the period, particularly the impact of the earthquake and tsunami in Japan and, of greater short term financial consequence, the adoption of new collective labour agreements in Germany following court rulings which required us to increase pay rates to temporary workers as well as incur substantial one-off legal costs.

The resultant gross margin reduction experienced in Germany over the period, caused by the need to move to new collective labour agreements, is being partially reversed through price increases and further compensated for by cost reductions, although it is taking longer to fix than initially anticipated. Whilst we are expecting a stronger trading performance from our German operations in the second half, the Group's full year profits before exceptional provision are expected to be lower than current market forecasts.

The trading environment remains stable, with strong demand in certain overseas markets offset by softer market conditions in the UK. Our focus in the second half remains on driving improved performance in our German operations as well as continuing to strengthen our other businesses both in terms of management and service capability and to identify areas for further expansion."

Board statement


The Group generated Revenue in the period of £105.2m, an increase of 1% on the prior year and Net fee income (gross profit) of £22.4m, level with 2010. Adjusted operating profit, before exceptional items and amortisation of intangible assets, was £1.7m, down from £3.1m in the previous year. Adjusted profit before tax of £1.2m was achieved, against £2.6m in the prior year.

These results are disappointing, reflecting the material financial impact on Group profits of new labour agreements in Germany, our largest market, during the first half of the year. The financial performance in Germany also masks the positive progress being made elsewhere, particularly in Asia where we continue to increase Net fee income as well as build capacity for further growth.

Strategic progress

Empresaria's strategy is to develop a leading international specialist staffing group, balanced in terms of sector, geography and operational coverage, with a focus on emerging markets. The Group operates in 18 countries with 65% of Net fee income derived from markets outside of the UK (2010: 67%).

We continue to invest both in existing businesses and new operations. In the first half of the year we introduced five sector specialist brands into the Singapore market as well as investing in new branches and infrastructure in China, Australia and Finland.

As well as expanding into new geographies and markets, we continue to review our portfolio of operations with a view to increasing our exposure to professional and white collar recruitment and improving both conversion ratios and working capital efficiencies. In the first half the Group sold its interest in a primarily blue collar UK logistics operation to management and, early in the second half of the year we sold our Indonesian payroll outsourcing operation to an Australian trade buyer. The impact of both transactions is to remove low margin, low profit businesses from the Group, generate cash proceeds of over £1m and reduce exposure, in the case of the UK, to the fragile retail sector. Although we will continue to review operations, there are no further disposals currently planned.

Market overview

Market conditions vary across the different regions within which we operate. Whilst much improved from the trading environment of 2009, the UK and European markets remain challenging. In Germany, the relatively strong economic performance has led to acute shortages of certain skills and, although barriers to immigration from EU accession states were lifted in May 2011, there are still significant obstacles to placing foreign workers in German companies. The Asian economies continue to perform strongly with the exception of Japan which is still suffering the consequences of the recent earthquake and tsunami. Our Chilean operations continue to develop in line with growing economies and have now fully recovered from the effects of the earthquake last year.



Revenue decreased by 13% to £32.5m in the period (2010: £37.3m) but Net fee income rose by 7% to £7.8m (2010: £7.3m). This apparent dichotomy is explained by the decision, previously reported, to move away from lower margin contracts and re-focus our infrastructure and construction operations on business where there is greater added value and consequently higher gross margins. In addition, we have seen increased demand for permanent staff, particularly in the Financial Services sector, which has altered the mix between permanent and termporary revenue contribution.

Continental Europe

Revenue increased by 7% to £50.1m in the period (2010: £47.0m) although Net fee income declined by 14% to £9.0m (2010: £10.4m). Within Continental Europe, the Group's operations are primarily temporary staffing and outsourced HR services and approximately 90% of the region's Net fee income is generated in Germany.

The decline in Net fee income in the period can be directly attributed to the need to change pay tariffs for temporary workers in Germany following the legal ruling relating to certain collective labour agreements at the end of 2010. Many temporary workers have received an increase in pay which has taken longer to pass on to clients than initially anticipated. The financial impact of this disruption amounted to £1.7m in lost net fee income and unplanned legal costs in the period. Gross margins in Germany have improved in recent months, although they are still running behind 2010 levels. Our German operations were additionally affected by the widely reported e-coli food scare which resulted in a drop in revenues within our Logistics division. Both of these operational challenges have been addressed and we are expecting a materially improved financial performance in the second half.

As reported in March, part of our German operations may be subject to claims for retrospective pay and social security contributions following rulings by the Federal Labour Court. Based on developments since signing the 2010 financial statements and information currently available, a provision of £3.0m has been recognised as a best estimate of the potential retrospective claims for individual workers and social security contributions.

Operational challenges in Germany have been somewhat offset by growth within our healthcare staffing business based in Finland, Estonia and Lithuania.

Rest of the World

Revenue increased by 12% to £22.6m in the period (2010: £20.1m) and Net fee income increased by 19% to £5.6m (2010: £4.7m). This region, which includes Asia Pacific and South America, has the highest proportion of permanent revenue contribution, at 60% of total regional Net fee income, and this increased by 34% over the prior year to £3.3m. Revenue from temporary recruitment also increased, up 9% to £18.5m.

The three main markets of Japan, Chile and South East Asia account for approximately 84% of regional Net fee income. The largest of these markets, Japan, was badly affected by the earthquake, tsunami and subsequent radiation scare. Both of our businesses in that country suffered a short term financial impact with temporary staff unable to work. In addition, temporary numbers have dropped as an indirect consequence of the earthquake, with foreign workers leaving the country and with clients opting to take temporary workers on permanent contracts to secure key skills. The South East Asia market remains buoyant. The Group has invested significant resources in new Singapore operations during the period with five separate specialist brands now operating in the territory.

Our operations in Chile continue to grow revenue and to improve gross margin.


Net borrowings at the period end increased to £8.5m from £7.6m at 30 June 2010, in line with our expectations. Cash payments included £0.8m on investing activities, including a net £0.5m on the acquisition of minority shares in Group companies (after proceeds of £0.1m on the disposal of the UK Supply chain business). There was also a £2.3m cash outflow on working capital movements and £0.1m for dividends to minority shareholders. There was a net cash inflow of £3.3m following the renewal of bank facilities in March 2011. The completion of the sale of our payroll processing business in Indonesia will have a positive impact on net borrowings in the second half of the year, through net cash receipts of £0.8m and the reduction of invoice finance facilities.


In line with previous years, the Board is not recommending the payment of an interim dividend for the six months ended 30 June 2011 (2010: nil).

Management changes

Miles Hunt has informed the Board of his intention to leave the Group after over 15 years as Chief Executive in order to pursue other opportunities. Miles will facilitate a smooth transition of responsibilities to Joost Kreulen who will take over the role of Chief Executive and be appointed to the Empresaria Board from 1st January 2012. Miles will remain on the Board as a non-executive director until the end of March 2012. Joost Kreulen has been appointed as the Group's Chief Operating Officer with immediate effect.

Joost has been with the Group since 2008, initially responsible for its Asian operations and more recently also for a number of the Group's UK based businesses. Prior to joining Empresaria Joost was head of specialist staffing operations for Vedior in the Netherlands as well as being responsible for business development within Northern Europe and Germany.

The Board would like to thank Miles for his enormous contribution to the development of Empresaria since formation in 1996 during which time the Group has grown from a start up in one office, armed only with a management philosophy and a vision for growth, into a specialist staffing group stretching across 18 countries.


The financial impact of the disruption to our German operations during the first half of the year has been greater and lasted longer than originally anticipated. Whilst we are seeing a continued recovery in gross margins in Germany, these are not yet back at 2010 levels. With Germany accounting for approximately 40% of Group Net fee income and softer market conditions in the UK, the growth generated from our Asian and Chilean operations is not sufficient to offset this short-term deficit within our largest market. As a consequence we now expect full year profits before exceptional provision to be lower than current market forecasts.

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