RNS Number : 7406Z
Empresaria Group PLC
21 March 2012
 



EMPRESARIA GROUP PLC

Results for the year ended 31 December 2011

Good performances from UK and Rest of the World regions.  Performance in Continental Europe impacted by previously highlighted issues in Germany, but overall business model has shown resilience and there are encouraging opportunities for growth.

Financial Highlights

 

2011

 

 

2010

 

 

% change

 

% change (constant currency)

Revenue

£208.9m

£206.8m

+1%

0%

Net fee income

£46.9m

£46.5m

+1%

0%

Operating profit

£2.8m

£7.2m

-61%


Adjusted operating profit*

£5.3m

£7.4m

-28%


Profit before tax

£1.9m

£6.5m

-71%


Adjusted profit before tax*

£4.5m

£6.6m

-32%


(Loss)/earnings per share

(0.4)p

7.0p

n/a


Adjusted earnings per share*

4.0p

6.2p

-35%


 

21% growth in permanent revenue

Temporary revenue flat year on year

Net fee income growth of 1%

Conversion ratio declines to 11% (2010: 16%)

Exceptional charge of £1.7m for potential retrospective pay claims in Germany following legal rulings on collective bargaining agreements, reduced from £3.0m at the half year

Net debt of £5.6m at year end (2010: £6.1m), after investing £2.1m in working capital and £1.3m on purchasing minority shares

 

* Adjusted results exclude amortisation of intangible assets, movements on values of put and call options and exceptional items.  

Operational Highlights

Operational focus on delivering organic growth from our existing operations

Net fee income growth in two out of three reporting regions

+19% in Rest of the World

-10% in Continental Europe

+5% in UK

New offices established in Singapore, Australia and China

Tony Martin, Chairman of Empresaria, commented:

 

"The UK and Rest of the World regions grew net fee income by 5% and 19% respectively.  However, the Group as a whole experienced a 1% growth in revenue and net fee income, with adjusted profit before tax down 32% to £4.5m and adjusted EPS down 35% to 4.0p.  The major reason for this was lower profits in Germany, where the adoption of new collective bargaining agreements, following court rulings, required us to increase the pay rates for some of our temporary workers and to incur significant legal fees.  This has had a negative impact on margins and while we have seen an improvement in gross margin over the second half of the year, it still remains below historic levels.  We have obtained greater clarity on the potential exposure against retrospective pay claims from temporary workers and social security contributions in relation to these court rulings.  This has lead us to reduce the provision that we made at the half year of £3.0m to £1.7m at the year end, reflecting the lower expected exposure.

 

Global economic conditions remain uncertain and, while we continue to see generally good candidate and client demand, confidence is fragile and necessitates a cautious approach, especially in the UK and Continental Europe.  The Group trades in many emerging markets across the world and we see opportunities for organic growth across these regions and expect to see improved returns for the year ahead."

 

 

A presentation of these results will be made to analysts and investors on 21 March 2012 and an edited copy of this will be made available late that morning on the Empresaria Group plc website: www.empresaria.com

 

For further information contact:  

 

Empresaria Group plc

01342 711430

Joost Kreulen, Chief Executive  

Spencer Wreford, Group Finance Director  

 

Altium (Nominated Adviser)

0207 484 4040

Tim Richardson

Katherine Hobbs

 

Allenby Capital Limited (Broker)

Nick Naylor

Nick Athanas

0203 328 5656

  

Chairman's statement

Overview of performance in 2011

The UK and Rest of the World regions grew net fee income by 5% and 19% respectively. However, the Group as a whole experienced a 1% growth in revenue and net fee income, with adjusted profit before tax down 32% to £4.5m and adjusted EPS down 35% to 4.0p.  The major reason for this was lower profits in Germany, where the adoption of new collective bargaining agreements, following court rulings, required us to increase the pay rates for some of our temporary workers and to incur significant legal fees.  This has had a negative impact on margins and while we have seen an improvement in gross margin over the second half of the year, it still remains below historic levels.  We have obtained greater clarity on the potential exposure against retrospective pay claims from temporary workers and social security contributions in relation to these court rulings.  This has lead us to reduce the provision that we made at the half year of £3.0m to £1.7m at the year end, reflecting the lower expected exposure. 

 

The year also saw the terrible earthquake and tsunami in Japan which resulted in the Japanese economy entering into recession by the end of the year.  We are thankful that all of our staff were safe and the strong leadership exhibited by our local management teams helped both our businesses to achieve comparable profits with the prior year.

 

We have continued to reduce our reported net debt, which was down to £5.6m at year end (2010: £6.1m), despite further investment in working capital to support the revenue growth and set up of new offices in the Rest of the World region. This investment has seen four of our existing brands establish themselves in new markets during the year and demonstrates our continued commitment to generate organic profit growth from our existing Group.

 

Board

As reported at the half year, Miles Hunt has decided to leave the Group to pursue other opportunities.  He ceased to be the Chief Executive Officer as at 31 December 2011, but remains on the Board until 31 March 2012 as a Non-executive Director.  He has overseen a smooth transition to Joost Kreulen, who became Chief Executive Officer on 1 January 2012.

 

Joost has been with the Group since 2009, initially responsible for our Asian operations and more recently also for a number of our 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 19 countries.

 

People

The number of people working within the Group fell to 803 at the end of 2011, down from 883 the previous year.  The average number of staff throughout the year was 848, up from 832 in the previous year.  The lower number at the year-end reflects the loss of 85 staff from businesses that were disposed of during the year. Empresaria's success is largely dependent on the efforts and contribution of its people and the Board would like to thank them for all of their hard work in the year.

 

Dividend

The priorities for our free cash flow remain to invest in developing our business and to strengthen our balance sheet, while supporting a sustainable dividend policy.  For the year ended 31 December 2011, the Board is proposing to maintain a dividend of 0.35p per share (2010: 0.35p per share) which, if approved by shareholders at the Company's Annual General Meeting, will be paid on 16 July 2012 to shareholders on the register on 15 June 2012.

 

Governance

Development and delivery of Group strategy must be supported by sound corporate governance practices that are appropriate to the size and philosophy of the Group. Since the Group moved to AIM in late 2004, strategic development has lead to an increase in the size and spread of the Group, in terms of both sector and geography, with a focus on developing staffing markets and emerging economies. Underpinning Group strategy we continue with the philosophy of management equity, with operating company management teams investing directly in their own businesses thereby aligning management and shareholder interests. The increased size and spread of the Group, together with the philosophy of management equity, has required the development and provision of a sound corporate governance framework. The Board continue to develop and enhance the Group's corporate governance arrangements in line with the principles of the UK Corporate Governance Code, balancing the need to operate the Group in an efficient, effective and ethical manner whilst allowing entrepreneurial management teams to operate to deliver the strategic goals of the Group. 

 

We were delighted to receive external recognition for the communication of our corporate governance reporting, winning the 2011 ICSA Hermes Transparency in Governance award for best annual report in the AIM/small cap companies category.

 

Current trading and outlook

Global economic conditions remain uncertain and while we continue to see generally good candidate and client demand, confidence is fragile and necessitates a cautious approach, especially in the UK and Continental Europe.  The Group trades in many emerging markets across the world and we see opportunities for organic growth across these regions and expect to see improved returns for the year ahead.

  

Chief Executive Officer's business review

Introduction

This is my first set of results as Chief Executive Officer, which I became with effect from 1 January 2012.  I initially joined Empresaria at the beginning of 2009 with a focus on the Asia region only.  Since assuming the role of CEO I have had the opportunity to extend my knowledge of the Group across all of its regions and to work closely with all of our businesses.  I am encouraged by the management strength throughout our regions and I believe this will help us deliver good organic growth. 

 

Group results overview

The Group generated revenue of £208.9m, an increase of 1% over the prior year and net fee income (gross profit) of £46.9m, also up 1% on 2010.  Within this, performance across our operating regions was variable, reflecting their different market conditions during the year. 

 

In the Rest of the World region revenue grew by 13% to £39.2m (2010: £34.7m) and net fee income grew by 19% to £11.2m (2010: £9.4m). Our Asian and South American businesses continued to improve their gross profit contribution to the Group with good performances from Indonesia, Thailand and Chile in particular.  This region was the main focus for expansion in the year, with new offices and branches opened in Singapore, Australia and China across six of our brands.  The economic conditions in this region are generally more positive than in Europe and we see further opportunities for growth.  In March 2011 Japan suffered from a natural disaster with an earthquake and resulting tsunami having a devastating effect on the country.  Despite this, our two businesses performed very well with revenue and net fee income growth year on year and adjusted operating profit level with 2010.  In total the adjusted operating profit for the region was down on the prior year at £1.1m, mainly due to the significant investment in setting up the new offices.

 

In the UK revenue was down 8% to £67.0m (2010: £72.7m) but net fee income was up 5% at £16.0m (2010: £15.2m). As highlighted last year, our infrastructure and construction operations are moving away from lower margin contracts to focus on more value added and higher margin business.  Adjusted operating profit was £2.0m, level with 2010, following increases in staff costs and bad debts.

 

In Continental Europe, revenue increased by 3% to £102.7m (2010: £99.4m), but net fee income declined by 10% to £19.7m (2010: £21.9m).  The operations in Continental Europe are primarily temporary staffing and heavily weighted to Germany and Austria, which together represent 86% of the regional net fee income.  The reduction in profit is mainly due to the lower margins in Germany resulting from the change in pay tariffs for temporary workers following the legal ruling at the end of 2010 relating to certain collective bargaining agreements.  These costs were not able to be fully passed on to clients or offset through cost savings elsewhere and, while margins improved in the second half of the year, they are still below historic levels.  We saw improved results in our healthcare business in Finland, however, overall adjusted operating profit for Continental Europe declined to £2.2m (2010: £3.9m).

 

Overall Group gross margin was 22.5%, the same as last year, with a 21% increase in permanent revenue helping to offset flat temporary revenue and a reduced temporary margin of 17.3% (2010: 18.1%).  Permanent sales contributed 29% of the Group net fee income (2010: 26%).

 

Cash generated from operations in the year was £3.9m (2010:  £8.3m).  After accounting for tax and interest, the Group generated free cash flow (being net cash from operating activities) of £1.2m (2010: £5.1m), with £2.0m used to acquire equity held by management in subsidiary companies and fixed assets and £0.3m to pay dividends to shareholders and to holders of minority shares in subsidiaries. There was a cash inflow of £1.0m from disposal proceeds.  Group net debt at the year-end was £5.6m (2010: £6.1m).

 

Priorities

There are some clear immediate priorities; improving the margins in Germany and ensuring that the lower profit businesses and the investments made in 2011 deliver growth and increased profit for 2012 are the key focus areas for the whole management team.  While we remain open to external investment opportunities, we do expect to focus on our existing operations over the next year. 

 

Business development

The Group has continued to invest in new geographic markets as part of its diversification strategy.  With the help of the hub concept in Singapore, four brands are now established in this market and are expected to make a positive contribution to profits in 2012.  We have also invested in new branches in China and Australia.  In January 2012 we opened our first office in Hong Kong, focussing on the financial services sector.

 

We continue to position the Group to increase our exposure to white collar and professional recruitment and to improve conversion ratios and working capital efficiency.  In the first half of the year we disposed of our interest in a primarily blue collar UK logistics operation to its management team and in the second half of the year we sold our Indonesian payroll outsourcing business to an Australian trade buyer.  These transactions have removed low margin, low profit businesses from the Group, generated cash proceeds of £1.0m and reduced our exposure to overseas debt finance.

  

 

Regional review

 

UK

£'m

2011

2010




Revenue

67.0

72.7




Net fee income

16.0

15.2




Adjusted operating profit

2.0

2.0




% of Group net fee income

34%

33%




 

Revenue decreased by 8% to £67.0m (2010: £72.7m), with a 12% increase in permanent revenue being offset by a 9% reduction in temporary revenue.  Despite this, net fee income grew by 5% to £16.0m (2010: £15.2m) helped by the temporary margin improving by 2% on 2010. The reduction in revenue was largely as a result of our infrastructure and construction operations targeting higher margin and more value added contracts and reducing its exposure to the higher volume, low margin, highly competitive contracts, which also typically have longer payment terms.  Overall UK gross margin increased to 24% (2010: 21%).  Temporary staffing accounted for 60% of net fee income (2010: 64%) reflecting the improved permanent market.  Adjusted operating profit of £2.0m was level with the prior year.

The market conditions were good in the first half of 2011, but growth rates slowed in the second half and in particular in the final quarter.  However, net fee income grew each quarter against 2010.

Our Infrastructure and Construction businesses experienced lower temporary revenue, albeit at higher margins, and an increase in permanent revenue, so delivering an improved net fee income.  Costs increased due to staff costs and bad debts.  The outlook for publicly sponsored infrastructure projects appears to be improving and the new regional and airport offices performed well in the year.

In Financial services, revenues grew again, in particular from permanent positions.  Competition is strong in this market and this is keeping temporary margins in line with the prior year.  The outlook for the sector is cautious, given the ongoing euro crisis and potential impact on the banking industry.  The LMA Recruitment brand expanded into Singapore in 2011 and more recently opened an office in Hong Kong, to help deliver growth outside of the London market.

Within our Other brands category we have experienced mixed performances, with improved results in particular from our creative and retail brands and investment in our domestic services brand.  However, the recruitment-to-recruitment business, McCall, experienced slow market conditions, especially in the second half, as a number of recruitment companies ceased investing.

In May 2011 the Group disposed of its UK Supply Chain business operated by The Logistics Network Limited and More Driving Limited to a management lead team.  This was a low margin and low profit operation which was exposed to the fragile UK retail sector.  The transaction resulted in a loss on disposal, largely due to the write off of goodwill but did generate cash inflow for the Group of £0.2m in the year, with a further £0.1m due by the end of 2014.

 

Continental Europe

£'m

2011

2010




Revenue

102.7

99.4




Net fee income

19.7

21.9




Adjusted operating profit

2.2

3.9




% of Group net fee income

42%

47%






Revenue grew by 3% to £102.7m (2010: £99.4m) but there was a decline in net fee income of 10% to £19.7m (2010: £21.9m).  There has been pressure on margins across the region, with gross margin falling to 19% (2010: 22%).  While cost savings were achieved, these were not sufficient to offset the fall in gross profit, resulting in adjusted operating profit of £2.2m (2010: £3.9m).

 

The German economy has been the most resilient in Europe and currently enjoys historically low unemployment rates.  However, we were not able to benefit fully from this during 2011.  Revenue in Germany was slightly down against 2010 but the pressure on margins resulted in significantly lower net fee income.  This decline is a result of changes required to the pay tariffs used for our temporary workers in Germany, following a legal ruling at the end of 2010 relating to certain collective bargaining agreements.  Many temporary workers have received an increase in pay and it was not possible to fully pass this on to all of our customers in the year.  The total impact of the reduced margins, together with unplanned legal costs amounted to £2.6m lower profits when compared with 2010.  There was an improvement in gross margin in the second half of the year, but it remains below historic levels and further action is ongoing, as a management team priority, to improve this position.

 

As a result of the legal challenge against certain collective bargaining agreements some of our German operations may be subject to retrospective pay claims and social security contributions.  At the half year we recognised a provision for £3.0m as a best estimate of these potential costs.  Since then we have received the audit results from the social security agency for the majority of our branches which provides a clearer estimate of their maximum claim and the likely timing for making payments to them.  With this and an updated estimate of potential claims from workers for retrospective pay, at year-end we are recognising a reduced total provision of £1.7m, which we believe is sufficient to cover any potential liabilities from this issue albeit there remains some uncertainty as to the final outcome.  It should be noted that the legal position in relation to the validity of retrospective claims is still subject to further court rulings.  We have registered objections against the social security claims to protect our position in the event of a positive court ruling in the future.

 

As announced on 13 March 2012, since the year-end we have appointed a new managing director for our German business.  We have reached an agreement with the previous managing director, who is a minority shareholder in the business, to re-structure the timings of the put and call options over his minority shares.  We have agreed to purchase 6.7% of the shares in the German business from him for Euro 1.3m and have call options over the remaining 13.3% of the shares in the German business not already owned by us, which are exercisable through to January 2014.

 

Our healthcare staffing operations, based in Finland and Estonia, performed well again in 2011, with high revenue and net fee income growth.  However, there was a reduction in margins due to both an investment in new dental clinics and a correction to the tax treatment of certain benefits provided to candidates.  This resulted in an exceptional charge of £0.3m for one-off historic costs which, together with other non-recurring costs in the year, resulted in a lower increase in operating profit than in gross profit.  The structural shortage of healthcare staff in Finland is expected to continue for the foreseeable future, so providing opportunities for the business to continue to grow.

 

Our specialist businesses in Czech Republic and Slovakia saw good growth in revenue and net fee income, following improving economic conditions and must now start delivering profitable growth.

  

Rest of the World

£'m

2011

2010




Revenue

39.2

34.7




Net fee income

11.2

9.4




Adjusted operating profit

1.1

1.5




% of Group net fee income

24%

20%




 

 

Revenue grew by 13% to £39.2m (2010: £34.7m) and net fee income grew by 19% to £11.2m (2010: £9.4m).  This region has been the fastest growing again this year and now represents 24% of the Group net fee income. Permanent revenue grew by 27% and temporary revenue grew by 10%, with temporary margins also improving over the prior year.  Permanent recruitment, which includes the training and Recruitment Process Outsourcing ("RPO") businesses in Indonesia and India respectively, contributed 60% of net fee income.  Temporary recruitment revenue is primarily delivered from our businesses in Chile, Japan and Australia.    The investment in new offices in Singapore, China and Australia had a negative impact on profit of approximately £0.6m, which is the main factor for the decline in adjusted operating profit to £1.1m (2010: £1.5m).

 

In Japan our operations were disrupted by the earthquake and tsunami in March 2011 and the resulting radiation scare, which stopped temporary workers from being able to work and slowed down the recruitment process across the country.  Despite this, our businesses demonstrated resilience with revenue and net fee income growth.  Profit was delivered at the same level as the prior year.

 

Within the South East Asia region we have seen continued strong growth in revenue and net fee income, although operating profit was down as a result of the investments in new office openings.  There were particularly good performances from Indonesia and Thailand and the new operations in Singapore established themselves with good teams of consultants.  The floods that paralysed large parts of Bangkok in the last quarter of 2011 had short-term timing issues for our business but we do not expect any more disruption from this in 2012.

 

In the second half of the year we disposed of our payroll outsourcing business in Indonesia to an Australian trade buyer.  This was a low margin and low profit business that required a high level of working capital financing, and while it resulted in a marginal accounting loss on disposal, it generated cash proceeds of £0.8m, with a further £0.1m paid by the end of February 2012.  Following this transaction our Indonesian businesses still represent 6% of the Group's net fee income.

 

In India revenue was flat year-on-year but profitability was down due to the need to restructure the business following the loss of a key client in the RPO operation.  There is also an exceptional provision of £0.2m in relation to a long-running historic contractual dispute.  Aside from this there was good growth in other parts of the business, especially with outsourcing operations to US clients and in the global candidate sourcing division.

 

In China there has been a growth in profits due to a higher proportion of permanent recruitment.  Investment has also been made in a new business which focuses on the recruitment process from a candidate perspective rather than the traditional company focus.  This business is becoming well established and is expected to deliver good returns over the next few years.

 

In South America, our outsourcing business in Chile had good revenue and profit growth, after recovering from the market disruption in 2010 caused by the earthquake.  Gross margin has improved, and remains a key area of focus.

 

Finance review

Revenue and gross profit

Revenue for the year was £208.9m (2010: £206.8m), a 1% increase. Gross profit also increased 1% to £46.9m (2010: £46.5m).  Gross margin was 22.5% (2010: 22.5%) as an increase in permanent revenue was offset by a lower temporary margin.  Permanent sales grew by 21% and accounted for 29% of the gross profit (2010: 26%).  Temporary revenue was level with 2010, but the margin reduced to 17.3% (2010: 18.1%).

 

The proportion of gross profit from non-UK operations increased slightly to 66% (2010: 65%).  On a constant currency basis, gross profit would have been level with 2010.

 

Group trading summary

From continuing operations

2011


2010


% change


£m


£m



Revenue

208.9


206.8


1%

Gross profit

46.9


46.5


1%

Administrative costs

(41.6)


(39.1)


6%

Adjusted operating profit*

5.3


7.4


(28%)

Net interest payable and receivable

(0.8)


(0.9)


11%

Adjusted profit before tax*

4.5


6.6


(32%)







Operating profit

2.8


7.2


(61%)

Profit before tax

1.9


6.5


(71%)

 

* The adjusted operating profit and adjusted profit before tax figures exclude exceptional items, intangible amortisation and movements in the values of put and call options.

 

Operating profit

Administrative costs increased by 6% to £41.6m, mostly due to higher staff costs and bad debts.  Costs in the UK were broadly level with the prior year, in Continental Europe were down year-on-year, especially for commissions, but were 19% higher in the Rest of the World through staff costs and rent.  This increase in the Rest of the World included the investment in new offices in the year.  Adjusted operating profit was £5.3m, down 28% on the prior year.  The conversion ratio of 11.3% was also down from 15.9% in 2010.

 

Operating profit, after intangible amortisation and exceptional costs was £2.8m (2010: £7.2m).

 

Finance income and costs

Finance income was £0.6m (2010: £0.4m).  Bank interest income was £0.1m (2010: £0.1m).  Finance costs were £1.5m (2010: £1.1m).  Interest payable on invoice discounting and bank loans and overdrafts was £0.9m (2010: £1.0m).  There was a net loss of £0.1m from the movement in the fair value of put and call options over minority shares in Group companies (2010: £0.2m gain).

 

Exceptional charges

International Financial Reporting Standards (IFRS) require that items of income and expenditure that are material in terms of their nature or amount should be disclosed separately.  Such items have been disclosed as exceptional charges in these accounts.  The total provision is £2.2m (2010: Nil) and is made up of three items.  Firstly is the provision of £1.7m against potential liabilities to social security and worker claims in Germany following court rulings on the validity of certain collective bargaining agreements.  There is also a provision of £0.3m for social security and tax penalties on historic benefits provided to candidates in Finland.  Finally there is a £0.2m provision in India arising from a long running dispute with a former client over the basis for charging fees for work performed.

 

Taxation

The total tax charge in the year is £1.1m (2010: £2.1m) representing an effective tax rate of 58%.  Against the adjusted profit before tax and after excluding the tax on the exceptional provisions the effective tax rate reduced to 36%.  This is relatively high because of a combination of prior year tax charges, no tax benefit on certain accumulated losses and non-deductible costs in the year.  The profits earned by the Group are subject to different tax rates in the countries in which the Group operates.

 

Discontinued operations

On 20 May 2011, the Group disposed of the trade and assets of the Supply chain business in the UK.  A loss of £0.2m arose on the disposal, being the carrying amount of net assets transferred and attributable goodwill.  Consideration received was £0.2m with deferred consideration of £0.1m receivable through to 2014.

 

On 15 July 2011 the Group disposed of Advanced Career Indonesia (ACI) in Indonesia.  There was a £0.1m loss on disposal after the write off of attributable goodwill and carrying value of net assets.  Consideration received was £0.8m, with a further £0.1m received after year-end.

 

Both of these have been accounted for as discontinued operations.

 

Loss/earnings per share

Basic loss per share from continuing and discontinued operations in the year ended 31 December 2011 was a loss of 0.4p (2010: earnings of 7.0p).

 

The Group achieved adjusted earnings per share of 4.0p (2010: 6.2p).  This measure excludes exceptional items, intangible amortisation and fair value movements on put and call options and provides a better understanding of underlying trading.

 

There were no movements in the number of shares in issue during the year. However 1.2m share options were issued to the executive directors.  The dilution effect of these share options was insignificant in the year.

 

Dividend

During the year the Group paid a dividend of £0.2m in respect of the year ended 31 December 2010, amounting to 0.35p per share.  For the year ended 31 December 2011 the Board is proposing a dividend of 0.35p per share, which if approved by shareholders at the Annual General Meeting, will be paid on 16 July 2012 to shareholders on the register on 15 June 2012.

  

Treasury

The Group maintains a range of facilities appropriate to manage its working capital and medium-term financing requirements.  At the year-end the Group had banking facilities totalling £29.8m (2010: £30.1m) of which £6.3m was undrawn (2010: £4.2m).

 

Bank facilities at 31 December

2011


2010


£m


£m

Overdrafts, loans and other bank debt

17.0


16.5

Invoice financing facilities

12.8


13.5

Other debt

-


0.1


29.8


30.1

 

The Group renewed its bank facilities in March 2011.  The revolving credit facility has reduced to £6.25m from £7.25m and is for a 5 year term.  A new amortising term loan of £3.0m has been secured for 5 years, in addition to the remaining balances of the current term loans which continue to amortise on the same basis as before.  The overdraft facilities have increased from £4.8m to a maximum of £6.1m.  The Sterling overdraft facility is phased over the calendar year, starting at £4.0m until the end of July, reducing to £3.0m until the end of September and then reducing to £2.0m over the remainder of the year.  This is designed to match the Group's funding requirements which typically are greater in the first half of the year.  The overdrafts are renewable annually and were last renewed in February 2012.

 

Cash flow

Net borrowings decreased by £0.5m in the year to £5.6m at the end of the year (2010: £6.1m).  There was a cash outflow on working capital of £2.1m and £1.3m on acquiring minority shares in Group companies.  Tax payments were £1.8m with further cash outflows of £0.7m on capital expenditure, £0.8m on net interest costs and £0.3m on dividends, of which £0.1m was paid to minority shareholders and £0.2m was paid to Group shareholders.  Against this there was a cash inflow of £1.0m from the disposal of Group businesses.

 

Bank facilities

Group net debt decreased from £6.1m at 31 December 2010 to £5.6m at 31 December 2011, as detailed below:


2011


2010


£m


£m

Cash at bank and in hand

6.0


7.1

Overdraft facilities

(1.3)


(3.8)

Invoice financing (with recourse)

(0.2)


(0.8)

Bank loans

(9.6)


(8.6)

Non-bank loans

(0.5)


      - 


(5.6)


(6.1)

 

This net debt excludes non-recourse invoice financing of £10.1m (2010: £8.5m) which is offset against trade receivables.

 

The Group's bank covenant tests at 31 December 2011 were net debt:EBITDA of 0.9 times (covenant < 2.5 times), interest cover of 7.4 times (covenant > 3 times) and debt service cover of 1.3 times (covenant > 1.25 times).

 

Acquisitions

In January 2011 the Group acquired 15% of the shares in Skillhouse Staffing Solutions K.K. (operating in Japan) for £0.6m.  In December 2011 the Group acquired 35% of the shares in Monroe Consulting Group (operating in Indonesia) for £0.5m, including contingent consideration of up to £0.1m payable in 2012 if certain performance criteria are met.  The Group also acquired small amounts of shares in a number of other subsidiaries for £0.1m in total.

 

The Group also made the final payments of contingent consideration of £0.1m for the Saleslink business, acquired in 2009.

 

Balance sheet

The Group's net assets as at 31 December 2011 were £28.2m (2010: £29.2m). There were decreases in the value of goodwill and intangible assets of £1.6m and £0.7m in trade receivables.  Against this was a net increase of £0.4m in the value of the put option liability and call option asset and reductions of £0.5m in trade payables and £0.5m in net debt.

 

Post balance sheet events

On 26 January 2012 the Group announced the acquisition of 14.5% of the shares in Bar 2 Limited, a UK based contractor services company, for cash consideration of £0.3m.  This takes the Group's ownership to 85.5%.  The remaining minority shares will be acquired in 2014, with consideration based on the financial performance of Bar 2 Limited in the three years ending 31 December 2013.

 

On 13 March 2012 the Group announced it had agreed to purchase 6.7% of the shares in Empresaria Holding Deutschland GmbH (the holding company for the Headway operating companies) for Euro 1.3m.  This takes the Group's ownership in the Headway business to 86.7%.  The call option agreements over the remaining 13.3% of minority shares have also been amended to extend the exercise period up to the end of January 2014.

 

Going concern

The Board has undertaken a recent and thorough review of the Group's budget, forecasts and associated risks and sensitivities. Despite the uncertainty in the economy and its inherent risk and impact on the business, the Board has concluded, given the level of borrowings and bank facilities, that the Group is expected to be able to continue in operational existence for the foreseeable future, being a period of at least twelve 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. 

 

 

Consolidated Income Statement 


















2011


2010













Note





£m


£m

Continuing operations










Revenue


2





208.9


206.8

Cost of sales







(162.0)


(160.3)








 -


 -

Gross profit


2





46.9


46.5

Administrative costs







(41.6)


(39.1)

Operating profit before exceptional items and intangible amortisation




5.3


7.4











Exceptional provisions


3





(2.2)


-

Intangible amortisation







(0.3)


(0.3)

Operating profit


2





2.8


7.2

Finance income


5





0.6


0.4

Finance costs


5





(1.5)


(1.1)

Profit before tax







1.9


6.5

Income tax


6





(1.1)


(2.1)

Profit for the period from continued operations





0.8


4.4











Discontinued operations










(Loss)/profit for the period from discontinued operations

4





(0.4)


0.2











Profit for the year







0.4


4.6








 -


 -

Attributable to:










Equity holders of the parent







(0.1)


3.1

Non-controlling interest







0.5


1.5








0.4


4.6

 

Earnings per share :




















From continuing operations










Basic and diluted (pence)


8





0.6


6.5

Adjusted (pence)


8





4.1


6.4










From continuing and discontinued operations








Basic and diluted (pence)


8





(0.4)


7.0

Adjusted (pence)


8





4.0


6.2

 

Consolidated Statement of Comprehensive Income






2011


2010






£m


£m









Exchange differences on translation of foreign operations


(1.0)


0.6

Net (expense) / income recognised directly in equity



(1.0)


0.6

Profit for the year





0.4


4.6

Total comprehensive (expense) / income for the year



(0.6)


5.2









Attributable to:








Equity holders of the parent



(0.9)


3.4

Non-controlling interest



0.3


1.8






(0.6)


5.2

 

Consolidated Balance Sheet












2011


2010



Note


£m


£m

ASSETS







Non-current assets







Property, plant and equipment




1.7


1.9

Goodwill




25.1


26.4

Other intangible assets




2.2


2.5

Deferred tax assets




1.5


1.0

Call option asset




0.3


0.9





30.8


32.7





Current assets







Trade and other receivables



30.3


31.0

Cash and cash equivalents




6.0


7.1





36.3


38.1

Total assets




67.1


70.8





LIABILITIES







Current liabilities







Trade and other payables




24.5


25.0

Current tax liabilities




2.0


1.8

Borrowings


9


3.0


12.7

Put option liability




-


1.0





29.5


40.5









Non-current liabilities







Borrowings


9


8.6


0.5

Deferred tax liabilities




0.8


0.6

Total non-current liabilities




9.4


1.1

Total liabilities




38.9


41.6

Net assets




28.2


29.2





EQUITY




Share capital




2.2


2.2

Share premium account




19.4


19.4

Merger reserve




1.5


1.5

Retranslation reserve




4.0


4.1

Option reserve




0.8


(0.6)

Equity reserve




(2.4)


(1.9)

Other reserves




(1.1)


(0.6)

Retained earnings




0.3


1.5

Equity attributable to owners of the company



24.7


25.6

Non-controlling interest




3.5


3.6

Total equity




28.2


29.2

Consolidated Statement of Changes in Equity

 


Share capital

Share premium account

Merger reserve

Retranslation reserve

Option reserve

Equity reserve

Other reserves

Retained earnings

Non-controlling interest

Total equity


£m

£m

£m

£m

£m

£m

£m

£m

£m

£m












Balance at 31 December 2009

2.2

19.4

1.5

3.9

(0.6)

-

(0.7)

(1.5)

2.7

26.9

Profit for the year

-

-

-

-

-

-

-

3.1

1.5

4.6

Dividend

-

-

-

-

-

-

-

(0.2)

-

(0.2)

Currency translation differences

-

-

-

0.2

-

-

0.1

-

0.3

0.6

Disposal of subsidiary

-

-

-

-

-

-

-

-

0.1

0.1

Non-controlling interest acquired during the year

-

-

-

-

-

(1.9)

-

-

(0.1)

(2.0)

Dividend paid to non-controlling interest

-

-

-

-

-

-

-

-

(0.9)

(0.9)

Balance at 31 December 2010

2.2           

         19.4

          1.5

           4.1

(0.6)

(1.9)

(0.6)

          1.5

          3.6

        29.2












Profit for the year

-

-

-

-

-

-

-

(0.1)

0.5

0.4

Dividend

-

-

-

-

-

-

-

(0.2)

-

(0.2)

Currency translation differences

-

-

-

(0.8)

-

-

-

-

(0.2)

(1.0)

Disposal of subsidiary

-

-

-

0.7

-

-

(0.5)

-

0.1

0.3

Non-controlling interest acquired during the year

-

-

-

-

-

(0.5)

-

-

(0.4)

(0.9)

-

-

-

-

1.4

-

-

(0.9)

-

0.5

Dividend paid to non-controlling interest

-

-

-

-

-

-

-

-

(0.1)

(0.1)












Balance at 31 December 2011

2.2

19.4

1.5

4.0

0.8

(2.4)

(1.1)

0.3

3.5

28.2





















Equity comprises the following:  

                                                                                                           

•   "Share capital" represents the nominal value of equity shares.  

                                                                       

•   "Share premium account" represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the

    share issue.

                                                                                                           

•   "Merger reserve" relates to premiums arising on shares issued subject to the provisions of section 612 "Merger relief" of the                       

    Companies Act 2006.

                                                                                                           

•   "Retranslation reserve" represents the exchange differences arising from the translation of the financial statements of foreign subsidiaries.

   

•   "Option reserve" relates to the initial recorded value of the liability relating to the put options held by non-controlling interests over the shares in the subsidiary companies net of the initial recorded value of the call options held by the Group over shares held by non-controlling interests.

                                                                                                           

•   "Equity reserve" represents movement in equity due to acquisition of non-controlling interests under IFRS 3 (2008).          

           

•   "Other reserves" represents exchange differences on intercompany long-term receivables which are treated as a net investment in foreign operations.

 

•   "Retained earnings" represents accumulated profits less distributions and income/expense recognised in equity from incorporation.           


 

Consolidated Cash Flow Statement
















2011


2010







£m


£m










Profit for the year






0.4


4.6

Adjustments for:









   Depreciation






0.8


0.8

   Intangible amortisation






0.3


0.3

   Taxation expense recognised in income statement




1.1


2.3

   Exceptional provisions






2.2


-

   Loss / (gain) on business disposal





0.4


(0.3)

   Net finance charge






0.8


0.8







6.0


8.5










   Increase / (decrease) in invoice discounting





1.4


(2.4)

   Increase in trade receivables






(1.9)


(1.5)

   (Decrease) / increase in trade payables





(1.6)


3.7







Cash generated from operations






3.9


8.3

Interest paid






(0.9)


(1.1)

Income taxes paid






(1.8)


(2.1)










Net cash from operating activities





1.2


5.1










Cash flows from investing activities








Further shares acquired in existing subsidiaries




(1.3)


(2.1)

Business disposals






1.0


(0.2)

Purchase of property, plant and equipment and intangibles




(0.7)


(0.8)

Finance income






0.1


0.1










Net cash used in investing activities





(0.9)


(3.0)


















Cash flows from financing activities








(Decrease) / increase in borrowings





(2.4)


1.8

Proceeds from bank loan






2.4


-

Repayment of bank and other loan





(1.0)


(0.8)

Dividends paid to shareholders






(0.2)


(0.2)

Dividends paid to non-controlling interest in subsidiaries




(0.1)


(0.9)










Net cash from financing activities





(1.3)


(0.1)












Net (decrease) / increase in cash and cash equivalents




(1.0)


2.0

Effect of foreign exchange rate changes and disposal




(0.1)


0.2

Cash and cash equivalents at beginning of the year




7.1


4.9










Cash and cash equivalents at end of the year






6.0


7.1

 

 Basis of preparation and general information

The financial information has been abridged from the audited financial information for the year ended 31 December 2011.

The financialinformation set out above does not constitute the Company's statutory accounts for the years ended 31 December 2011 or 2010, but is derived from those accounts. Statutory accounts for 2010 have beendelivered to the Registrar of Companies and those for 2011 will be delivered following the Company's Annual General Meeting. The Auditors have reported on those accounts; their reportswere unqualified, did notdraw 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 2010 and 2011.

Whilst the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards ('IFRS'), this announcement does not itself contain sufficient financial information to comply with IFRS. The Group will be publishing full financial statements that comply with IFRS in May 2012.

2   Segment analysis

The revenue and profit before taxation are attributable to the Group's one principal activity, the provision of staffing and recruitment services, and can be analysed by geographic segment as follows.  The Group's reportable segments are business units based in different geographic regions.  Each unit is managed separately with local management responsible for determining local strategy.

Information reported to the Group's Chief Executive for the purpose of resource allocation and assessment of segment performance is based on profit or loss from operations before amortisation of intangible assets and exceptional items.

The analysis of the Group's business by geographical origin is set out below:

 

Year ended 31st December 2011

UK

Continental Europe

Rest of the World

Total

Revenue

Gross profit

Adjusted operating profit*

Operating profit

67.0

102.7

39.2

208.9

16.0

19.7

11.2

46.9

2.0

2.2

1.1

5.3

2.0

0.1

0.7

2.8

 

Year ended 31st December 2010

UK

Continental Europe

Rest of the World

Total

Revenue

Gross profit

Adjusted operating profit*

Operating profit

72.7

15.2

2.0

2.0

99.4

34.7

206.8

21.9

9.4

46.5

3.9

1.5

7.4

3.7

1.5

7.2

* Adjusted operating profit represents operating profit before exceptional items and intangible amortisation.

 

3   Exceptional provisions 

 

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.

 

Exceptional provisions







2011


2010








£m


£m

Continental Europe










Provision against potential retrospective pay claim claims and social security liability in Germany

(1.7)


-

Provision for social security in Finland



(0.3)


-








(2.0)


-

Rest of the World










Provision for contract dispute in India




(0.2)


-








(0.2)


-











Total







(2.2)


-







 

In Germany the Group has potential liabilities to the social security department and temporary worker claims for equal pay following changes to pay tariffs resulting from court rulings in 2010 in relation to the validity of certain collective bargaining agreements.  The provision of £1.7m covers potential retrospective claims in the years 2006 to 2010.  The legal outcome of these claims remains uncertain and is subject to ongoing legal cases.

In Finland there is a provision of £0.3m for social security costs and tax penalties arising on historically provided benefits to candidates being placed in Finland.  Since year end a tax audit in relation to this matter has been finalised with a cost arising in line with the provision value.

In India there is a £0.2m provision arising from a historic dispute with a former client over the basis for charging fees for work performed.  The contract has been in place since 2008 and the legal entitlement to certain commission income for IMS, a subsidiary of Empresaria, is being disputed following the termination of the contract by the client.  The provision is for the full amount of fees that are in dispute.

4          Discontinued operations

 

On 20 May 2011, the Group disposed of its UK Supply Chain business operated by The Logistics Network Ltd and More Driving Ltd. On 15 July 2011, the Group disposed its Indonesian subsidiary 'Advance Career Indonesia'. The results of the discontinued operations which have been included in the consolidated income statement were as follows








2011


2010








£m


£m











Revenue







6.1


16.9

Costs







(6.1)


(16.8)

Tax







-


(0.2)

Trading loss from discontinued operations




-


(0.1)

 

Loss on disposal







 

(0.4)


 

0.3

 

Net (loss)/profit from discontinued operations




 

(0.4)


 

0.2

 

A loss of £0.3m arose on the disposal of the Supply Chain business, being consideration of £0.3m less the carrying value of assets disposed of and the attributable goodwill. This includes deferred consideration receivable up to December 2014 equal to £0.1m at year end. In the period to 31 December 2011 £0.2m consideration has been received.

A loss of £0.1m arose on the disposal of Advance Career Indonesia, being consideration of £1.0m less the carrying value of assets disposed of and the attributable goodwill. The consideration includes contingent consideration of £0.1m, received in February 2012. In the period to 31 December 2011 £0.9m consideration was received.








2011


2010








£m


£m











Property, plant and equipment






0.1


0.1

Trade and other receivable







0.7


0.8

Trade and other payable







(0.2)


(1.2)

Tax balances







0.2


-

Bank borrowings







(0.4)


(0.3)








0.4


(0.6)

Non-controlling interest and retranslation reserve




0.3


0.1

Goodwill write off on disposal






0.7


-

Disposal costs







0.3


0.2

Net assets/(liabilities) disposed of






1.7


(0.3)











Total consideration







1.3


-











(Loss)/profit on disposal







(0.4)


0.3

 

 

5          Finance income and cost

 








2011


2010








£m


£m

Finance income










Bank interest receivable







0.1


0.1

Movement in put option liability







0.5


0.3








0.6


0.4

Finance cost










On amounts payable to invoice discounters




(0.2)


(0.2)

Bank loans and overdrafts







(0.7)


(0.8)

Movement in call option assets







(0.6)


(0.1)








(1.5)

 


(1.1)

Net finance cost







(0.9)


(0.7)

 

6          Taxation

 








2011


2010








£m


£m











Current tax







(1.5)


(2.3)

Adjustment to tax charge in respect of previous periods


(0.1)


(0.2)








(1.6)


(2.5)

Deferred tax







0.5


0.4











Total income tax expense in the income statement



(1.1)


(2.1)

 

 

7          Reconciliation of Adjusted profit before tax to Profit before tax

 








2011


2010








£m


£m











Profit before tax

1.9


6.5

Amortisation of intangibles

0.3


0.3

Exceptional provisions

2.2


-

Movement in put option liability

(0.5)


(0.3)

Movement in call option assets

0.6


0.1

Adjusted profit before tax from continuing operations

4.5


6.6

 

8          Earnings per share

 

The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the average number of shares in issue during the year.  A reconciliation of the earnings and weighted average number of shares used in the calculations are set out below.

 

The calculation of the basic and diluted earnings per share is based on the following data.

 

a)   From continuing and discontinued operations

 








2011


2010








£m


£m

Earnings










Earnings attributable to equity holders of the parent


(0.1)


3.1

Adjustments :










  Exceptional provisions



2.2


-

  Loss / (gain) on business disposal



0.4


(0.3)

  Movement in put option liability



(0.5)


0.1

  Movement in call option asset



0.6


(0.3)

  Amortisation of intangible assets



0.3


0.3

  Tax on exceptional items and intangible amortisation


(0.6)


-

  Non-controlling interest in intangible amortisation and exceptional items

(0.5)


(0.1)

Earnings for the purpose of adjusted earnings per share

1.8


2.8











Number of shares







millions


millions

Weighted average number of shares- basic and diluted


44.6


44.6











Earnings per share










Basic







(0.4)


7.0

Adjusted earnings per share



4.0


6.2

 

b)   From continuing operations

 








2011


2010








£m


£m

Earnings










Earnings attributable to equity holders of the parent


(0.1)


3.1

Adjustments to exclude loss/(profit) from discontinued operations

0.4


(0.2)

Earnings from continuing operations for the purpose of basic and diluted earnings per share

0.3


2.9

Adjustments :










   Exceptional provisions



2.2


-

   Movement in put option liability


(0.5)


0.1

   Movement in call option asset


0.6


(0.3)

   Amortisation of intangible assets

0.3


0.3

   Tax on exceptional items and intangible amortisation

(0.6)


-

   Non-controlling interest in intangible amortisation and exceptional items

(0.5)


(0.1)

Earnings for the purpose of adjusted earnings per share


1.8


2.9











Number of shares







millions


millions

Weighted average number of shares- basic and diluted


44.6


44.6











Earnings per share










Basic







0.6


6.5

Adjusted earnings per share




4.1


6.4

 

 

c)   Fully diluted earnings per share

 

During the year 1.2m share options were issued.  The dilution effect of these options has been insignificant.

 

9          Borrowings

 








2011


2010








£m


£m

Current










Bank overdrafts







1.3


3.8

Amounts related to invoice financing





0.2


0.8

Current portion of bank loans





1.0


8.1

Other loan creditors







0.5


-








3.0


12.7




Non-current










Bank loans







8.6


0.5








8.6


0.5

Total financial liabilities





11.6


13.2

 

The bank loans include a revolving credit facility and two term loans which expire in 2013 and 2016. The bank loans are secured by a first fixed charge over all book and other debts given by the Company and certain of its subsidiaries.  Interest rates vary over the term of the loan. In 2011, interest was payable at between 1.25% and 2.375% over base rate on the term loans, and between 1.75% and 2.375% over LIBOR on the revolving credit facility.

 

The interest rate on the bank overdrafts was fixed in 2011 at rates of 2.25% and 2.5% above base rate.

 

The amounts above for invoice financing represent with-recourse facilities. The Group also has non-recourse invoice financing which is offset against trade receivables.  The total amount at 31 December was £10.1m (2010: £8.5m).

 

Movement in net borrowings




2011


2010








£m


£m

As at 1 January







(6.1)


(8.0)

Net (decrease) / increase in cash and cash equivalents


(1.1)


2.0

Decrease / (increase) in loans


1.0


(1.0)

Decrease in invoice financing


0.2


0.5

On disposal of business



0.4


0.3

Currency translation differences

-


0.1

As at 31 December







(5.6)


(6.1)

 

Analysis of net borrowings




2011


2010








£m


£m

Financial liabilities - borrowings




(11.6)


(13.2)

Cash and cash equivalents




6.0


7.1

As at 31 December







(5.6)


(6.1)

 

Cash and cash equivalents at 31 December 2011 include cash with banks of £0.3m (2010: £0.3m) held by subsidiaries in China which are subject to currency exchange restrictions.

 

10         Dividends

 








2011


2010








£000


£000

Amount recognised as distribution to equity holders in the period:

 




Final dividend for the year ended 31 December 2010 of 0.35 pence (2009: 0.35 pence) per share

156


156











Proposed final dividend for the year ended 31 December 2011 is 0.35 pence (2010: 0.35 pence) per share

156


156

 

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
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FR SESFASFESEID