RNS Number:6155S
Empresaria Group PLC
Part 2 : For preceding part double-click [nRNSR6155S]

Miles Hunt
Chief Executive
17 April 2008

Operational review


Revenues from UK operations increased 23% to £81.2m and net fee income grew 18%
to £21.0m. The differing growth rates reflected a change in the mix of our UK
business with significant growth coming from our, primarily temporary staffing,
Property Services and Construction division. As a consequence, the mix of
temporary staffing net fee income to permanent recruitment net fee income
continued to improve to a 58%:42% (2006: 56%:44%) split, therefore resulting in
a drop in the UK gross margin percentage from 28.9% to 28.6%.

Within our Property Services and Construction sector our FastTrack brand in
particular performed well in the year, buoyed by contract wins at Heathrow and
London Underground. With construction work now commencing for the 2012 Olympics
we anticipate the number of upcoming business development opportunities to
increase significantly this year.

Our Other Brands sector also generated significant growth in the year with
Greycoat Placements (domestic staff), McCall (recruitment to recruitment), The
Recruitment Business (creative design) and Bar 2 (payroll services) all
delivering good results. The performance of the sector as a whole would have
been stronger but for poor performance from EUResource, an on-site recruitment
operation, that suffered from a number of bad debt issues (resolved by the end
of 2007) and poor commercial management leading to the replacement of the
managing director and corporate restructuring at the end of 2007. The changes
at EUResource are expected to result in a drop in revenues in this sector in
2008. We do, however, expect continued overall growth in net fee income
generated by this sector in 2008.
Within the Financial Services sector LMa, our banking operations brand, saw a
56% growth in revenues as it concentrated on expanding its temporary staffing
operations. It started 2008 with approximately twice the number of temporary
staff deployed as at the same time in 2007. Insurance operations also grew with
Lime Street launching a new Bristol office in the second half of the year.

The Supply Chain businesses benefited from the structural changes made at the
beginning of the year and the integration of the MVP and DriveLink operations.
Since then, we have invested in a new managed service business offering a broad
range of staffing solutions to the logistics and supply chain industry and,
since the year end, we have acquired Forward Prospects, a small freight
forwarding recruitment business.
The only sector in the UK to experience a decline in either revenues or net fee
income was the Public Sector. The market is undergoing significant
consolidation and margin erosion and, as a result, we are currently reviewing
our options for this sector.

Continental Europe

Revenues grew from £0.5m in 2006 to £52.4m in 2007. Net fee income grew from
£0.4m in 2006 to £16.8m in 2007.

Outside of the Headway contribution (with operations in Germany and Austria) the
principal contributors in the year were EAR in Holland and ITC in Poland which
collectively contributed revenues of £5.4m and net fee income of £1.4m. In
addition the group operates in the Czech Republic and Slovakia through the GiT
brand. ITC was acquired in late 2006 and is currently expanding from its core
base of "work abroad" services to offer temporary staffing solutions to the
domestic Polish market. EAR was acquired in May 2007 and focuses mainly on
supplying technical trades from a network of four offices in central and
southern Holland.

Rest of the World

Revenues grew 57% to £14.2m and net fee income grew 22% to £4.6m. Headline
numbers do not provide a true reflection of the underlying development activity
of this broad region. Recent start ups in India, China and in countries
throughout South East Asia have now either reached profitability or are close to
doing so. The Monroe Consulting operation (executive recruitment) has expanded
to new offices in Manila, Bangkok and Singapore to add to existing offices in
Jakarta and Kuala Lumpur. The Advanced Career operation in Indonesia (temporary
staffing and outsourcing) now has seven branches in the country as well as new
operations in Singapore. Following the acquisition of Learning Resources
(corporate training solutions) in Indonesia in March 2007, we have established
new offices in Bangkok, Singapore and Manila. Our operations in India and China
continue to expand in terms of revenues, people and infrastructure.

Revenues from Japan were flat year on year as a result of a change in mix of our
Skillhouse IT staffing business with more clients converting temporary staff to
permanent positions and our Australian operations have seen a significant drop
in revenues following the re-structuring of the business reported this time last
year. In the case of Japan we are seeing a resumption in growth and a renewed
emphasis on temporary over permanent staffing revenue, assisted by the rapid
growth of our new fashion industry staffing company, FINES, established in July
2007. In Australia, the organisational changes made over the course of the year
have now created a more stable platform on which to grow.

The acquisition of shares in Alternattiva in Chile late in the year represents
the first investment by Empresaria in Latin America. Alternattiva provides
temporary and outsourced staffing solutions to the retail and telecommunications
industries in Chile. It is a long-standing family company with a strong market

Financial review

Financial performance


Group revenue rose by £72.3m (96%) in the year. Like for like sales increased by

Gross margin

The Group's net fee income percentage remained steady at 29%.
The Group's gross margin generated from the contract and temporary businesses
grew to 72% of total gross margin (2006: 56%). This increase is in accordance
with the Group's strategy of developing its temporary staffing business and
reflects both strong temporary revenue growth in our UK construction businesses
and the acquisition of the Headway Group, which is a purely temporary staffing


The Group uses adjusted profit before taxation (PBT) (as defined and calculated
on page 24) as its principal measure of operating performance. Profits before
tax are adjusted to remove the effects of amortisation of intangible assets and
any exceptional items incurred during the year.

Adjusted PBT for the year - for existing and continuing operations - rose by
114% (2006: 30%) to £6.2.m (2006: £2.9m) for the Group.

Adjusted operating margin on revenues increased slightly to 4.7% (2006: 4.6%),
despite continued investment in organic growth, particularly in the rest of the


The effective rate of corporation tax to headline profit before tax was 31% in
2007 compared to 29% in 2006.

The difference between the effective rate and the standard UK rate of
corporation tax principally reflects the Group's exposure to higher tax
environments outside of the UK. For example Japan where rates are in excess of

Earnings per share

Earnings per share, (EPS), adjusted for the effects of amortisation of
intangible assets and exceptional items, was 9.2 pence, an increase of 28% over
2006 (7.2 pence).
In 2007, the Group's weighted average issued share capital, as used to calculate
EPS, increased by 31% principally as a result of shares issued to acquire the
Headway Group as well as to increase the Group's share in existing operations.


The Directors have recommended the payment of a dividend of 0.55 pence per share
(2006: 0.50 pence), representing an increase of 10%. If approved, the dividend
will be paid on 18 August 2008 to members registered on 18 July 2007.

Net assets

As at 31 December 2007 the net assets of the Group were £29.1m (2006:£11.6m).

Executive Equity Purchase Plan

The Group operates an equity participation programme to incentivise its senior
management. An award under the scheme was made in 2007 and a charge of £102,500
is reflected in the income statement.


Goodwill and other intangible assets increased by £14.3m in the year, to £24.7m
(2006: £10.3m) at 31 December 2007. The details of the main transactions behind
this increase are explained below:

Purchase of Headway Group

In May 2007, the Group acquired 60% of the Headway Group for a cash
consideration of £9.9m. The balance of 40% of Headway remains with key
management shareholders and an option exists for them to sell a further one
third of their remaining holding to Empresaria after 2009 for a maximum
aggregate consideration of Euros 10m (approximately £7.5m).

Headway provides temporary and contract staff to a number of specialist
industries through over 60 branches throughout Germany and Austria, including
the Logistics, Engineering, Automotive, Retail and Biotechnology Sectors.

Purchase of EAR Group

In May 2007, the Group acquired 60% of the share capital of the EAR Group, for
an initial consideration of £289,000, paid in cash/shares.

Based in the Netherlands, the business specialises in the provision of temporary
and permanent staff, principally in the field of construction and property

Purchase of Alternattiva Group

In November 2007, the Group acquired 56% of the Alternattiva Group, a leading
Chilean staffing business providing temporary and outsourced staff principally
in the sales, marketing and promotional staffing solutions.

The initial consideration amounted to £690,000 with a maximum further
consideration of approximately £1.1m payable depending on the financial
performance of the business in 2008.

Purchase of minority share holdings

During 2007, Empresaria increased it shareholdings in Lime Street Recruitment
Limited and The Recruitment Business Limited for an aggregate consideration of
£495,000, of which £45,000 was payable by the issue of 24,789 shares in
Empresaria Group, with the balance paid in cash.

Post year end purchases

Since the year end Empresaria acquired a controlling interest in Forward
Prospects Limited, Spa Elite Limited and Travel World Selection Limited for a
total maximum consideration of £100,000. All businesses are based in the UK.

Principal risks and uncertainties

The principal risks and uncertainties that the Group face are:

Growth management

The Group's growth strategy includes the investment in and management of start
up businesses and acquisitions. This strategy has certain risks and failure to
improve operating performance of start-up businesses and acquired businesses may
adversely impact results, including the Group's cash flow.

Failure to ensure the Group has sufficient senior management resources to manage
and control its growth could adversely impact its profitability. The Board
regularly assesses the number and suitability of its senior management resources
and adapts this resource to the needs of the Group.

Dependence on key executives and personnel

The Group's future success is substantially dependent on retaining and
incentivising its senior management and certain key employees. The loss of the
service of key personnel may have an adverse impact on the Group's business and

However, the Group's philosophy of management equity ensures that key management
are appropriately incentivised through equity ownership. In addition, as the
Group grows and diversifies geographically, its reliance on any one company and
the individuals associated with that company reduces.

Market risks

Political environment

A change in government policy may impact on the level of public spending in the
key sectors in which the Group operates. Changes of this nature in the
macro-economic environment could adversely affect the financial performance of
the Company.

Economic environment

The performance of staffing businesses has historically shown a strong
correlation with performance of the economies in which they operate.
Empresaria's strategy of diversification within individual geographic markets
and its expansion internationally is designed to mitigate the effect of a
downturn in any one economy. Nevertheless, significant economic downturn in
either the UK or Germany could result in reduced revenues and profits for the

Legislative change

The Company's business is subject to European, UK and overseas employment
legislation. Any changes to this may impact on the manner in which Empresaria
conducts its business and could therefore affect the financial performance of
the Group.

Financial risks and treasury management

The Group expanded significantly overseas by both acquisition and organic
growth. This expansion has been partly funded by parent company loans
principally denominated in local currency of the recipient company. Therefore
the parent company is exposed to exchange rate fluctuations between the grant of
the loan and its settlement. Where these loans are material, the Group has taken
out forward exchange contracts to manage these risks.

With regard to credit risk the company has implemented policies that require
appropriate credit checks on potential customers before contracts are commenced.

In respect of interest rate risk the Group has interest bearing assets and
liabilities. Interest bearing assets and liabilities include cash balances and
overdrafts, all of which have interest rates applied which are commensurate with
the scale of the Group's operations.

Cash flow

For the first time in a number of years operating cash flow was lower than
operating profit. Net cash of £2.4m (2006: £5.4m) was generated from operations
during the year. The relative cash generation is affected by two principal
factors. As stated in last year's Annual Report, the 2006 cash flow was improved
by a significant one-time increase in the amount of invoice discounting
liability subject to non-recourse arrangements. In 2007 cash flow was depressed
by the mid-year acquisition of Headway, where a number of pre-acquisition
liabilities, were settled post acquisition. The main elements of these were
employer's liability insurance in respect of 2006, as well as accrued payroll
costs. The total one-time effect amounted to approximately £1.7m.

The Group debtors grew by £5m in the year due principally to growth in revenues
at our temporary operations, especially Headway in Germany and Fast Track in the

In the 2006 Annual Report we also commented on the UK government's abolition of
managed service companies and identified a negative cash flow impact on the
Group over 2007 and 2008. In practice the closure process of the Group's managed
service operations has taken longer than anticipated and the impact will be felt
in 2008 and 2009.

The Group spent £12.8m of cash on acquisitions (including cash acquired),
investment in associates and capital expenditure and raised £12.7m from
financing activities, of which £11.5m was from the issue of shares to fund the
acquisition of the Headway Group.

Net debt increased by £2.8m to £4.2m during the year, mainly reflecting debt
taken out to fund acquisitions of new companies and the purchase of minority
interests (£1.4m) and non-current liabilities assumed with new acquisitions

Management of liquidity risk

The Group maintains a range of facilities appropriate to fund its working
capital requirements as well as its strategy of organic and acquisitive
At the year end, the Group's financing arrangements comprised:

- cash at bank of £4.1m;
- overdraft facilities of £5.8m, of which £2.5m was utilised at the year end;
- a revolving credit loan facility of £2.5m, of which £1.2m has been
utilised. This facility is shown under current liabilities reflecting its
flexibility. In practice the facility is available until the end of 2009;
- outstanding term loans of £2.1m repayable over the next four years; and
- amounts owed in respect of invoice discounting and factoring agreements of

Nick Hall-Palmer
Group Finance Director
17 April 2008

Consolidated income statement

2007 2006
Note £'000 £'000

Continuing operations
Revenue 147,827 75,459
Cost of sales (105,476) (53,619)
---------- ----------
Gross profit 42,351 21,840
Administrative costs (35,613) (18,335)
---------- ----------
Operating profit 6,738 3,505
Finance income 240 6
Finance costs (870) (414)
---------- ----------
Net finance cost (630) (408)
Share of operating loss from associates (118) (203)
---------- ----------
Profit before tax 5,990 2,894
Income tax expense (1,881) (828)
---------- ----------
Profit for the year 4,109 2,066
========== ==========

Attributable to:
Equity holders of the parent 2,549 1,558
Minority interest 1,560 508
---------- ----------
4,109 2,066
========== ==========

Earnings per share from continuing operations:
Basic and diluted earnings per share 2 8.4 6.7
========== ==========

Consolidated balance sheet

2007 2006
£'000 £'000
Non-current assets
Property, plant and equipment 1,887 790
Goodwill 21,973 10,346
Other intangible assets 2,710 -
Interests in associates 981 582
Deferred tax assets 940 334
---------- ----------
28,491 12,052
---------- ----------

Current assets
Trade and other receivables 32,494 11,229
Cash and cash equivalents 4,110 3,342
---------- ----------
36,604 14,571
---------- ----------
Total assets 65,095 26,623
========== ==========


Current liabilities
Trade and other payables 24,773 9,388
Corporation tax payable 2,086 798
Short-term borrowings 6,227 3,558
---------- ----------
33,086 13,744
---------- ----------

Non-current liabilities
Long-term borrowings 2,050 1,201
Deferred tax liabilities 909 125
---------- ----------
Total non-current liabilities 2,959 1,326
---------- ----------
Total liabilities 36,045 15,070
---------- ----------
Net assets 29,050 11,553
========== ==========

Consolidated balance sheet (continued)

2007 2006
£'000 £'000
Share capital 1,668 1,193
Share premium account 16,623 5,185
Merger reserve 1,539 1,539
Translation reserve 962 (28)
Fair value reserve (52) (78)
Retained earnings 5,302 2,922
---------- ----------
Equity attributable to equity holders of the parent 26,042 10,733
Minority interest 3,008 820
---------- ----------
Total equity 29,050 11,553
========== ==========

Consolidated statement of recognised income and expense

2007 2006
£'000 £'000

Available-for-sale investments:
Valuation gains/(losses) taken to equity 25 (78)
Exchange difference on net assets of overseas subsidiaries 853 (28)
Tax on items taken directly to or transferred from equity (7) 23
---------- ----------
Net income / (loss) recognised directly in equity 871 (83)
Profit for the period 4,109 2,066
---------- ----------
Total recognised income and expense for the period 4,980 1,983
========== ==========

Attributable to:
Equity holders of the parent 3,557 1,475
Minority interest 1,423 508
---------- ----------
4,980 1,983
========== ==========

Consolidated cash flow statement

2007 2006
Note £'000 £'000

Net cash from operating activities 3 1,009 4,630

Cash flows from investing activities
Acquisition of new subsidiaries (11,874) (1,652)
Further shares acquired in existing subsidiaries (1,396) (417)
Cash acquired with subsidiary acquired 2,158 9
Acquisition of investment in associates (447) (694)
Loans given to associates (393) (214)
Purchase of property, plant and equipment (1,093) (528)
Finance income 142 6
---------- ----------
Net cash used in investing activities (12,903) (3,490)
---------- ----------

Cash flows from financing activities
Proceeds from issue of share capital 11,501 905
Proceeds from bank loan / borrowings 3,943 725
Payment of loan (282) (247)
(Decrease) in factoring borrowings (1,090) (733)
Finance cost (772) (414)
Dividends paid (166) (106)
Dividends paid to minority shareholders in subsidiary undertakings (472) (333)
---------- ----------
Net cash from / (used in ) financing activities 12,662 (203)
---------- ----------

Net increase in cash and cash equivalents 768 937
Cash and cash equivalents at beginning of period 3,342 2,405
---------- ----------
Cash and cash equivalents at end of period 4,110 3,342
========== ==========

Notes to the consolidated financial statements

1 Basis of preparation and general information

The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2007 and 2006, but is derived
from those accounts. Statutory accounts for 2006 have been delivered to the
Registrar of Companies and those for 2007 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
the Companies Act 1985, sections 237(2) or (3).

Accounting policies have been consistently applied throughout 2006 and 2007.

The consolidated financial statements are for the twelve months ended 31
December 2007. They have been based on the company's financial statements which
are prepared in accordance with International financial reporting standards as
adopted for use in the EU.

2 Earnings per share

Basic and diluted earnings per share

The calculation of the basic earnings per share is based on the earnings
attributable to ordinary shareholders divided by the weighted average number of
shares in issue during the year.

Based on current trading conditions, the Directors are of the opinion that there
would be no dilution to the earnings per share figure resulting from subsidiary
minority shareholders trading up.

Reconciliations of the earnings and weighted average number of shares used in
the calculations are set out below.
2007 2006
Profit after tax attributable to Equity shareholders of the parent (£000s) 2,549 1,558
Weighted average number of shares 30,192,276 23,102,238
Basic and diluted earnings per share (pence) 8.4 6.7

Adjusted earnings per share
2007 2006
£000 £000
Profit before tax 5,991 2,894
Income tax expense (1,881) (828)
Add back:
Intangible amortisation 107 -
Recognition of pre-acquisition deferred tax asset against goodwill under IFRS - 100
Impairment (net of negative goodwill) 37 -
Recognition of deferred tax liability on amortisation on purchased goodwill under IFRS 60 65
IFRS Transition cost 36 -
Minority interests (1,575) (562)
Adjusted profit after tax and minority interests 2,775 1,669
Adjusted earnings per share (pence) 9.2 7.2

3 Notes to cash flow

Net cash from operating activities
2007 2006
£'000 £'000
Profit for the year 4,109 2,066
Adjustments for:
Depreciation 685 337
Negative goodwill (712) -
Goodwill impairment 679 -
Intangible amortisation 107 -
Taxation expense recognised in income statement 1,881 828
Share of losses in associates 118 203
Net finance cost 630 408
(Increase) in trade receivables (5,101) (726)
(Decrease) / increase in trade payables (4) 2,253
---------- ----------
Cash generated from operations 2,392 5,369

Income taxes paid (1,383) (739)
Net cash from operating activities 1,009 4,630

4 Financial liabilities - borrowings
2007 2006
£'000 £'000
Bank overdrafts 2,516 -
Amounts relate to invoice financing 1,954 2,568
Current portion of bank loans 1,757 990
6,227 3,558

Bank loans 1,594 1,038
Other creditors 456 163
2,050 1,201
Gross Debts 8,277 4,759

2007 2006
£'000 £'000
Gross Debts 8,277 4,759
Less : Cash and cash equivalents 4,110 3,342
Net Debts 4,167 1,417

5 Business combinations

The Group made four acquisitions during the year (2006 - four acquisitions were

Newly acquired companies Learning Resources, Headway, EAR, and Alternattiva have
contributed £61,000, £1,028,000, £14,000 and £29,000 to the group profit
attributed to equity holders of the parent to 31 December 2007.

6 Annual report and accounts

The annual report and accounts for the year ended 31 December 2007 will be
posted to shareholders shortly. Additional copies will be available from the
Company Secretary at the Company's registered office Empresaria Group Plc,
Peveril Court, 6-8 London Road, Crawley, West Sussex, RH10 8JE.

7 Explanation of transition to IFRS

Empresaria Group plc's consolidated financial statements were prepared in
accordance with United Kingdom Accounting Standards (United Kingdom Generally
Accepted Accounting Practice) until 31 December 2006. The date of transition to
IFRS was 1 January 2006. The comparative figures in respect of 2006 have been
restated to reflect changes in accounting policies as a result of adoption of
IFRS. The disclosures required by IFRS 1 concerning the transition from UK GAAP
to IFRS are presented and explained in the group's interim financial statement
for half year ending 30th June 2006.

8 Reconciliation of statutory financial information to adjusted
information included within the financial highlights
2007 2006
£'000 £'000

Operating profit 6,738 3,505

Add back:
Goodwill / Intangible amortisation 107 -
Impairment (Net of negative goodwill) 37 -
IFRS Transition cost 36 -
============ ============ ------------
Adjusted operating profit 6,918 3,505

Share of loss in associated company (118) (203)
Interest payable and similar charges (Net) (630) (408)

============ ============ ------------
Adjusted profit before tax 6,170 2,894

Taxation (1,881) (828)
Recognition of pre-acquisition deferred tax asset against goodwill under IFRS - 100

Recognition of deferred tax on amortisation on purchased goodwill under IFRS 60 65
Minority interests (*) (1,574) (562)

============ ============ ------------
Adjusted profit after tax and minority interests 2,775 1,669
____________ ____________
============ ============ ============

Adjusted earnings per share (pence) 9.2 7.2
____________ ____________
============ ============ ============

(*) - adjusted as necessary for minority interest impact from goodwill
amortisation and exceptional item adjustments.

This information is provided by RNS
The company news service from the London Stock Exchange


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