Empresaria Group plc - Results for the year ended 31 December 2012

Empresaria Group plc ("Empresaria" or the "Group"), the international, multi branded specialist staffing services group, has delivered an improved profit over the prior year with particularly strong growth from the Rest of the World region.

Financial Highlights


20122011% change% change (constant currency)
Revenue£194.3m£208.9m-7%-4%
Net fee income£43.9m£46.9m-6%-3.5%
Operating profit£4.4m£2.8m+57%
Adjusted operating profit*£5.4m£5.3m+2%
Profit before tax£3.6m£1.9m+89%
Adjusted profit before tax*£4.6m£4.5m+2%
Earnings/(loss) per share3.0p(0.4)pn/a
Adjusted earnings per share* 5.0p4.0p+25%
  • 12% growth in permanent revenue
  • Temporary revenue declined 8% on prior year
  • Net fee income diversified by geography (Continental Europe 36%, UK 36%, Rest of the World 28%)
  • Conversion ratio increases to 12% (2011: 11%)
  • Exceptional charge of £0.7m, with £1.1m for restructuring costs in Germany and a £0.4m release of the provision for claims for retrospective pay and social security
  • Net debt of £8.1m at year end (2011: £5.6m), after purchases of minority shares and investment in working capital

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

Chief Executive Joost Kreulen said:

"In 2012 we delivered an improved profit performance over the prior year against the backdrop of challenging worldwide staffing markets and ongoing economic uncertainties. During the year we had to resolve some specific operational issues, in particular in Chile and Germany, but strong foundations now exist across the Group which can provide the basis for sustainable growth despite continued volatility in some of our markets.

Group revenue and net fee income were marginally lower than in 2011, but a tight control of costs offset this and allowed us to deliver an increased operating profit of £4.4m (2011: £2.8m) and profit before tax of £3.6m (2011: £1.9m). On an adjusted basis, profit before tax was £4.6m (2011: £4.5m).

We remain focused on delivering profitable growth, optimising our delivery models and tightly managing costs to improve conversion ratios. We closely monitor the productivity and efficiency of the whole organisation and this will continue to be a key area of focus in 2013, as the global economic conditions remain difficult and changeable. We are also looking at where we can make further investments in our brands to help them expand internationally and whilst we remain focused on bringing down our overall debt we will have a selective approach to external investments if the right opportunity comes up."


Chairman's statement

Overview of performance in 2012

Overall Group revenue was £194.3m (2011: £208.9m), a reduction of 7%, with Group net fee income reducing 6% to £43.9m (2011: £46.9m). However, good control over costs meant that both adjusted operating profit of £5.4m and adjusted profit before tax of £4.6m were up 2% on 2011. Adjusted earnings per share increased 25% to 5.0p (2011: 4.0p), benefitting from the purchases of minority shares made in the year.

At the regional level, the Rest of the World continued to grow strongly with net fee income increasing by 9% on the prior year. There was another particularly strong performance from the Asian region which grew by 15% year on year. Our recent investments in Singapore and Hong Kong are developing well and we expect them to deliver positive contributions in 2013.

Our UK business has solid foundations and maintained net fee income in 2012 at prior year levels, despite the double-dip recession. Tight cost control helped in delivering an increase in adjusted operating profit.

In Continental Europe, net fee income declined 20% over the year, predominantly as a result of the required realignment of our business in Germany. This restructuring exercise has removed a significant level of costs and right-sized the business for the current market conditions, but resulted in lower profits in 2012. We have recognised £1.1m of exceptional restructuring costs for Germany in these accounts. This has been partially offset by a reduction in the provision against claims for retrospective pay and social security in Germany. We have settled a large proportion of the historic claims and only had a small number of additional claims arise in the year.

Our reported net debt has increased to £8.1m (2011: £5.6m) due to our investment in working capital, a reduction in credit insured invoice financing and the purchase of minority shares, in particular the acquisition of the remaining minority shares in Headway for a total cash outlay in the year of Euro 2.95m (approximately £2.4m). By accelerating this purchase fully into 2012, the Company benefitted from a saving of approximately £0.6m in total consideration.

Board

Joost Kreulen took over as Chief Executive Officer on 1 January 2012, having been responsible for the Group's Asian operations since 2009 and, more recently, also for a number of the Group's UK based businesses. Joost has extensive experience of operational and business development roles within specialist staffing operations, having worked for over 25 years in the staffing industry.

Miles Hunt resigned from the Board, ceasing to be a Non-executive Director on 31 March 2012.

People

In absolute terms, staff numbers increased from 803 at the end of 2011 to 834 at the end of 2012, although the average number of staff fell from 848 last year to 834 this year, with the movements across the regions mirroring their financial performance.

The success of the Group is dependent on having the right people in the right place and the Board would like to thank all of the Group's staff for their hard work, commitment and contribution over the last year, in what have been challenging conditions for a number of our brands.

The Group strategy and success is underpinned by a philosophy of management equity. Operating company management teams invest directly in their own businesses, thereby aligning management and shareholder interests. Where we have acquired first generation management equity we are actively pursuing a strategy of second generation equity, to incentivise senior managers to drive the next stage of development of their companies. This will typically involve setting a threshold profit limit and allowing minority shareholders to benefit from increases in profit over this limit.

Dividend

We continue to adopt a sustainable dividend policy, whilst prioritising free cash flow for developing the Group and strengthening the balance sheet. For the year ended 31 December 2012, the Board is proposing to maintain the final dividend at 0.35p per share (2011: 0.35p per share) which, if approved by Shareholders at the Annual General Meeting, will be paid on 24 June 2013 to shareholders on the register at 24 May 2013.

Governance

The principle of sound corporate governance practices is core to our success as a Group. The diversified nature of the Group, operating through 20 brands across 18 countries, means it is vital that a strong control culture and clear policies on corporate conduct and governance exist and are communicated and monitored effectively. The Board develop the Group's corporate governance arrangements in line with the UK Corporate Governance Code, making sure that the entrepreneurial freedom enjoyed by the operating companies is within a framework of clearly understood principles and controls.

Current trading and outlook

We are cautiously optimistic about the current year. Global economic conditions remain uncertain and there are many risks to the fragile recovery seen in some of our key markets. However, due to the actions taken during 2012, we expect a better Group performance in 2013. In particular, the operational improvements made in Germany and Chile means both are better placed for the current year and the investments made in Singapore should contribute more positively from the solid platform now in place.

We continue to see opportunities for growth within our existing Group and will take a selective approach to external investments.


Chief Executive Officer's business review

Overview

In 2012 we delivered an improved profit performance over the prior year against the backdrop of challenging worldwide staffing markets and ongoing economic uncertainties. During the year we had to resolve some specific operational issues, in particular in Chile and Germany, but strong foundations now exist across the Group which can provide the basis for sustainable growth despite continued volatility in some of our markets.

Group revenue and net fee income were marginally lower than in 2011, but a tight control of costs offset this and allowed us to deliver an increased operating profit of £4.4m (2011: £2.8m) and profit before tax of £3.6m (2011: £1.9m). On an adjusted basis, profit before tax was £4.6m (2011: £4.5m).

Performance across the regions was mixed. Adjusted operating profit grew 33% in the Rest of the World and 12% in the UK, but it declined 23% in Continental Europe. The growth in the Rest of the World was driven by Asia-Pacific, with adjusted operating profit up more than 50%. The region was the fastest growing in the Group again this year. In Chile the exit costs of an onerous loss-making contract resulted in a loss for the year. However there was a much better performance in the second half of the year and we are confident that the business is much stronger and has a better mix of clients going into 2013. The UK has performed consistently, despite the double-dip recession and particularly weak market conditions across the financial services sector. In Continental Europe we have seen improvements in the Czech Republic and Slovakia, but these have been overshadowed by the reduced profit from Germany. Profit in Finland and Estonia was lower in the year as the business transitioned to a new management team.

Claims for retrospective pay and social security in Germany have been lower than originally anticipated, allowing a write back of the provision of £0.4m in the year. As at the end of 2012 we hold a provision of £1.0m which we believe is sufficient to cover all current and potential liabilities for these claims. During the year, in light of the impacts of changing pay rate tariffs and a declining German economy, we have taken action to reduce costs and right-size our German temporary recruitment business, closing or merging 13 branch offices across Germany and Austria and reducing staff numbers by 13% on average. Whilst we anticipate another challenging year in Germany, principally due to the introduction of equal pay legislation across many industries from November 2012, we believe the action taken during 2012 has helped put our business back on a profitable growth trend and are confident of increased demand over the medium-term.

We remain focused on delivering profitable growth, optimising our delivery models and tightly managing costs to improve conversion ratios. We closely monitor the productivity and efficiency of the whole organisation and this will continue to be a key area of focus in 2013, as the global economic conditions remain difficult and changeable. We are also looking at where we can make further investments in our brands to help them expand internationally and, whilst we remain focused on bringing down our overall debt, we will have a selective approach to external investments if the right opportunity comes up.

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