Final Results
Empresaria Group PLC
18 April 2008
Empresaria Group plc
Press Release
Full Year Results for the Year Ended 31 December 2007
Adjusted profit before tax up 114% to £6.2m as group reports a transformational
year
April 18, 2008: The AIM-quoted staffing and recruitment group Empresaria today
announced a doubling in revenue and pre-tax profits for the year ended 31
December 2007, and said it had made further significant strides in diversifying
its operations internationally.
The group also announced a strong start to 2008, with revenues and net fee
income on a like-for-like basis ahead of 2007.
Adjusted pre-tax profits for the year increased 114% to £6.2 million on revenue
up 96% to £147.8 million.
The group said the figures reflected the impact of the acquisition of Headway,
its German based operation as well as a strong performance from its UK
businesses.
Empresaria's strategy is to achieve balanced growth by developing its existing
businesses, investing in start-up businesses and making selective acquisitions.
To manage its exposure to fluctuations in any one economy the Group has
continued its strategy of diversifying into international markets offering
opportunities for high growth. In addition, it has focused on increasing the
contribution of its temporary and contract businesses, which offer greater
visibility of revenues and resilience to economic down turns.
For the first time, just over 50% of the Group's net fee income was generated
outside of the UK (2006 -19%) and 72% of its net fee income was generated by its
temporary and contract businesses compared to 56% in 2006.
Empresaria has operations in 18 countries across Europe, Asia, Australia and the
Americas trading through 49 companies.
Chairman Tony Martin said the investments made in Germany and Chile had
transformed the Group and commented, 'Empresaria can for the first time be
accurately described as a truly international specialist staffing group,
becoming increasingly balanced in terms of sector, geography and operational
mix. The fact that it is not weighed down by large clerical and industrial
staffing operations, we believe creates significant potential for future
relative out-performance. Further, the natural diversification of investment
across sectors and geographies should provide resilience in times of economic
uncertainty.'
'The group has enjoyed a good start to 2008. Revenues and net fee income on a
like-for-like basis are ahead of 2007 and there is no evidence of any material
change in demand for group services. The heavy investment in start up companies
made in recent years, particularly in the Asia region, is now starting to
generate financial returns. We continue to see strong revenue growth in our
Continental European operations and, particularly in Germany, see opportunities
to improve operating margins.'
A presentation of these results will be made to analysts and investors at 9.00am
on 18 April 2008 and an edited copy of this will be made available later that
morning on the Empresaria Group plc website: www.empresaria.com.
For further information contact:
Miles Hunt, Chief Executive, Empresaria Group plc: 01293 649 900
Stuart Kilpatrick, Group Finance Director, Empresaria Group plc: 01293 649 900
Allan Piper, First City Financial Public Relations: 020 7242 2666
Nicholas How, Kaupthing Singer & Friedlander: 020 3205 7620
Full results announcement attached
Empresaria Group plc
Preliminary Announcement for the Year Ended 31 December 2007
Headlines 2007
Financial headlines
• Revenues of £147.8m (2006: £75.5m) up 96%.
• Gross profit of £42.4m (2006: £21.8m) up 95%
• Profit before tax of £6.0m (2006: £2.9m) up 107%
• Adjusted profit before tax* of £6.2m (2006: £2.9m) up 114%
• Earnings per share of 8.4p (2006: 6.7p) up 25%
• Adjusted earnings per share* 9.2p (2006 : 7.2p) up 28%
• Group cash at bank at year end £4.1m (2006: £3.3m)
• Group net debt at year end £4.2m (2006: £1.4m)
• Proposed dividend of 0.55p (2006: 0.50p)
Operational headlines
• Strong organic growth from UK businesses
• Completion of the acquisition of Headway Group (Germany) in May 2007
• Entry into the Dutch staffing market through the investment in EAR in May
2007
• Entry into the South American market with investment in Alternattiva of
Chile in November 2007
• Further expansion in Japan by investment in FINES KK in June 2007
• Strong progress in the ASEAN ** market with the establishment of start-up
operations in Singapore and the Philippines as well as the acquisition of a
training business in Indonesia
• Senior management team strengthened
• Encouraging start to 2008
Financial highlights
£ 000's 2007 2006 2005 2004 2003
Revenue 147,827 75,459 54,060 45,430 29,367
Gross Profit 42,351 21,840 15,393 13,141 10,589
Total Operating Profit 6,738 3,505 1,914 1,067 817
Adjusted Operating Profit * 6,918 3,505 2,532 1,715 1,234
Adjusted Profit Before Tax * 6,170 2,894 2,225 1,390 1,113
Basic Earnings per share (pence) 8.4 6.7 3.1 1.4 1.9
Adjusted Earnings per share (pence) * 9.2 7.2 5.7 4.2 3.9
Dividend Proposed per share (pence) 0.55 0.50 0.45 0.40 0.38
* Figures based on underlying profits excluding amortisation of intangible
assets and any exceptional items. See reconciliation on page 24.
** ASEAN stands for Association of Southeast Asian Nations
Our businesses
Financial summary by region
In accordance with our strategy of creating a diversified international
specialist staffing business we review the regional performance of our
operations, a summary of which is provided below. As the Group develops we
expect to provide further analysis in relation to the Rest of the World once the
size of individual regions justifies it.
Our businesses in the UK
The UK Group provides permanent and temporary staffing solutions across five
main sectors; Construction and Property Services, Financial Services, Supply
Chain, Public Sector and Other Brands.
Financial highlights for the UK 2007 2006
Revenue (£'000s) 81,168 65,976
Net Fee Income (£'000's) 1 20,958 17,689
Adjusted Operating Profit (£'000's) 2 4,055 2,732
Number of Trading Companies 3 18 20
Number of Employees 265 249
Our businesses in Continental Europe
Following the acquisition of headwayholdings GmbH ('Headway') in May 2007, the
Group has a significant foothold in the German recruitment market. In addition
the Group has interests in companies based in Holland, Poland, Slovakia and the
Czech Republic.
Financial highlights for Continental Europe 2007 2006
Revenue (£'000s) 52,444 455
Net Fee Income (£'000's) 1 16,826 401
Adjusted Operating Profit (£'000's) 2 2,497 45
Number of Trading Companies 3 10 4
Number of Employees 298 34
Our businesses in the rest of the world
The Group has interests in companies based in Japan, South East Asia, Australia,
India, China and Chile.
Financial highlights for the rest of the world 2007 2006
Revenue (£'000s) 14,215 9,028
Net Fee Income (£'000's) 1 4,567 3,750
Adjusted Operating Profit (£'000's) 2 366 728
Number of Trading Companies 3 21 10
Number of Employees 197 82
1 Net fee income is equivalent to gross profit.
2 Figures based on underlying profits excluding amortisation of intangible
assets and any exceptional items. See reconciliation on note 8.
3 Reduction due to consolidation within the Public and Logistics Sectors during
2007.
Chairman's statement
Overview 2007
2007 was a transformational and highly successful year for the group. Revenues,
net fee income (gross profit) and pre-tax profits doubled in the year, driven by
a combination of strong organic growth from established businesses, increasing
contribution from recent start up investments and strong profits from
acquisitions. Of greater significance, however, was the transformation in the
shape and mix of the business. In 2005 the group derived 97% of its net fee
income from the UK. In 2007 the net fee income split was approximately 50:50
and in 2008 we expect almost 70% to come from markets outside the UK.
It is not just the proportion of income generated outside the UK that is of
importance but where that income derives from. Group development focus is on
emerging economies and developing staffing markets. Following the acquisition
of Headway in May 2007, the group generates approximately the same net fee
income from Germany - one of the fastest growing staffing markets in Europe - as
it does the UK. In addition, Empresaria has high growth operations in countries
such as Japan, India, China and Indonesia, each with high development potential.
Empresaria can for the first time be accurately described as a truly
international specialist staffing group, becoming increasingly balanced in terms
of sector, geography and operational mix. The fact that it is not weighed down,
as other staffing groups are, by large clerical and industrial staffing
operations, we believe creates significant potential for future relative
out-performance. Further, the natural diversification of investment across
sectors and geographies should provide resilience in times of economic
uncertainty.
Financial performance
Revenues for the year ended 31 December 2007 increased by 96% to £147.8m and net
fee income increased by 95% to £42.4m, a slightly higher figure than indicated
in the February trading statement following revision of the impact of currency
fluctuations and a review of the fair value of acquisitions. Profit before tax
(adjusted for amortisation of intangible assets) increased by 114% to £6.2m.
Although these figures include seven months of contribution from our acquisition
of Headway in Germany, they also reflect the strong organic growth contribution
from our established UK companies and the benefit of improved profitability as
central costs are absorbed across a broader group network.
Group strategy
Empresaria's strategy is to develop an international specialist staffing group,
balanced in terms of sector, geography and operational mix and driven by a
combination of organic and acquisitive growth.
Both group strategy and structure follow the underpinning philosophy of
management equity and the importance of aligning the interests of shareholders
and individual group company management teams through sharing risk and reward by
way of equity participation. Investments are made where management hold and
retain a meaningful stake in the business. The group's decentralised structure
also reflects this philosophy with local management retaining operational
autonomy and central functions focussing on financial planning and control,
group development and administration. For individual management teams this
arrangement offers a combination of support, responsibility and independence.
As Empresaria grows the group benefits from economies of scale and improved
rates of conversion of net fee income to operating margin as central costs are
absorbed across a wider community.
The evolution of Empresaria to date can be categorised broadly in two phases.
The first phase was the development from inception to the AiM float in late
2004. During this period it established itself as a diversified UK-based
specialist staffing group, known for its management equity philosophy and
recognised for its consistent strong financial performance. Since 2004, the
second phase, the group has been re-engineered. The strong philosophical
foundations and flexible corporate structure remain the same but the development
focus has shifted to new geographic markets in order to gain access to higher
growth economies and markets at the same time as reducing dependency on the UK
economic and regulatory environment. Empresaria is now a different company to
that of 2004 but its process of development is still at an early stage. The
Group is still unrepresented in the majority of Continental European countries
and also South America where Chile forms the only base of operations at present.
As other markets develop, particularly in the fast growing Asian countries,
there will be increased segmentation and creation of new vertical staffing
niches which in turn will offer new opportunities for investment. The speed of
further expansion will be dictated by market conditions and on identifying the
right investment opportunities.
Empresaria's people
The fantastic performance of the group in 2007 would not have been achieved
without the dedication, energy and enthusiasm of the more than 1,000 people
(including Associates) now working within the Group. We would like to thank
them all for their hard work and for their contribution to Empresaria's success.
Current trading and outlook
As stated in the trading statement in February, the group has enjoyed a good
start to 2008. Revenues and net fee income on a like-for-like basis are ahead
of 2007 and there is no evidence of any material change in demand for group
services. The heavy investment in start up companies made in recent years,
particularly in the Asia region, is now starting to generate financial returns.
We continue to see strong revenue growth in our Continental Europe operations
and, particularly in Germany, see opportunities to improve operating margins.
The outlook for the year needs to be considered with the economic forecasts in
mind. In this context the Board is mindful of the challenges and opportunities
that may be faced in the coming months. Empresaria has no meaningful direct
exposure to the US economy. Although Empresaria does have significant
operations in the UK, these are concentrated in large part on specialist sectors
where there is still a shortage of skilled staff and, in the case of our
Property Services operations, where demand is underpinned by long term
infrastructure projects.
The diversification into emerging economies and countries where recent labour
market liberalisation is creating growing demand for staffing solutions is
anticipated to offset softening markets elsewhere. In both relative and
absolute terms we believe Empresaria is strongly positioned to take advantage of
increased opportunities created as a consequence of economic downturn or market
disruption.
With these factors in mind the Board is cautiously optimistic as to the outlook
for the current year.
Tony Martin
Chairman
17 April 2008
Chief Executive's review
Performance review 2007
The rapid rate of development in 2007 has changed both the scale and scope of
Empresaria's operations. Reflecting these changes we are breaking down our
review of the business this year into three regions, UK, Continental Europe and
Rest of the World. This breakdown allows us to highlight not only relative
financial performance of each region but, of equal interest, the distinctive
growth strategies applied in each market.
The UK performed strongly in 2007. Development focus in the UK over recent
years has been to expand and strengthen our existing operations. This approach
is reflected in healthy organic growth rates at both revenue and net fee income
line of 20%, an improvement in the proportion of net fee income derived from
temporary staffing revenue to 58% and increased operational efficiency driving
the group's bottom line performance.
In Continental Europe, where labour markets tend to be more highly regulated and
economies of scale create greater competitive advantage, our approach has been
to build strong bridgeheads in individual country markets through acquisition
and then to use these as cornerstones for growth in each country. The clearest
example of this approach was the investment in Headway in Germany in May 2007.
Headway performed in line with expectations in 2007, generating year on year
revenue and net fee income growth of 25%.
Outside of the UK and Continental Europe we have targeted emerging economies and
staffing markets where the primary focus has been on investing in start up
operations with experienced local management teams. This approach has an
initial adverse impact on profits but, as we are already experiencing, creates
rapid organic growth in immature but fast developing markets. The year 2007 was
significant for this region as the large number of recent start up companies
moved collectively towards profitability.
Headway investment
On May 3, 2007 Empresaria acquired 60% in the German staffing company Headway, a
fast growing, partially specialised staffing company, based in Bavaria and
expanding its network rapidly in other parts of Germany. This acquisition was an
important strategic step in the internationalisation programme and gives
Empresaria a much more balanced stream of revenues and profits.
In the period from May to the end of the year Headway contributed revenues of
£47m, net fee income of £15m and operating profit of £2m, in line with
expectations.
The German market has experienced strong growth in 2007. Headway achieved sales
growth of 25.1%, exceeding the estimated market growth of approximately 20%,
running an ambitious expansion programme with a net total of 22 new branch
openings, starting from 47 branches in the beginning of 2006 and ending the year
with 69 branches. The investment made in new branch offices in 2007 will benefit
sales growth and profitability of Headway from 2008 onwards, as the immature
branch network starts to exploit its potential.
Particularly good progress was achieved in the specialised divisions Headway
Logistics, Headway Engineers and Headway Industry during 2007, increasing the
proportion of the company's specialist business to 56.2%, while Headway Austria
achieved profitability in 2007. The priorities for 2008 are to increase
profitability of the immature branch network, improving efficiencies throughout
the organisation as well as strengthening the successful existing divisions.
Management team and structure
The Group is managed by a small, balanced Board of Directors with a
non-executive Chairman, two executive directors and two non-executive directors.
Below the main board is a Board of Management chaired by the Chief Executive.
The executive directors are the Group Chief Executive and Group Finance
Director. In 2006 we created the role of Head of European Operations with
Continental Europe companies reporting to this new position. We have now created
a similar role for the UK. As previously announced, Nick Hall-Palmer steps down
as Group Finance Director and as a member of the main Board following the
reporting of our 2007 results after eight successful years in the role. His new
role is Group Development Director and Head of UK Operations. Nick is replaced
as Group Finance Director by Stuart Kilpatrick. We welcome Stuart to the team.
Market overview
Staffing is a relatively young industry. Growth rates and growth dynamics
differ from country to country. As individual staffing markets evolve,
generalist clerical and industrial staffing services make way for individual
market specialists as the drivers of growth. Liberalisation of previously
restricted labour markets acts as a catalyst for super-normal growth rates,
specific recent examples being Japan and Germany. The penetration rate - the
percentage of the working population of a country in temporary work - varies
from country to country depending on the regulatory and cultural environment.
The UK has the highest penetration rate of all international staffing markets.
Temporary staffing tends to follow permanent staffing in each new market as
employers and workers acclimatise to the benefits of flexible staffing. Above
all, the industry as a whole is growing on the back of the rapid global and
regional demographic changes, the increasing shortages of skilled staff and the
increasing demand for flexible workforce solutions and flexible working
arrangements.
The short-term fortunes of generalist clerical and industrial staffing companies
are connected to the broad economic environment in which they operate. For
specialist staffing companies such as Empresaria, our short-term fortunes are
largely dictated by the performance of the specialist markets we serve.
In the case of the UK market, the most developed of all international markets,
we have deliberately invested in a portfolio of sectors with different economic
and market dynamics. This diversification strategy has worked well over time
and enabled us to grow consistently through previous difficult market
conditions. At the moment we are seeing no material change in our markets.
Investment banking (approximately 8% of UK net fee income) has seen a decline in
permanent revenues but, by way of compensation, has seen a significant increase
in temporary staffing revenues. With the exception of our Public Sector
division (4% of 2007 UK net fee income), which continues to encounter
challenging market conditions, all sectors are performing strongly and are ahead
of 2007 at both revenue and net fee income levels for the first two months of
trading in 2008. Our Property Services and Construction sector, in particular,
is experiencing strong demand for its services, particularly from infrastructure
and transportation clients associated with upcoming projects such as the 2012
Olympics and the new London Cross-Rail initiative.
In Continental Europe, Empresaria's principal exposure is to the German market,
one of the stronger economies and without doubt one of the fastest growing
staffing markets as a consequence of recent labour market liberalisation.
Although industry growth rates appear to have declined over the course of 2007,
they are still expected to remain at double digit levels for a number of years
to come. Outside of Germany we are experiencing growth in our Eastern European
operations and enjoying contribution from our new Dutch company, EAR, whose rate
of expansion is being restricted by the shortage of available skilled workers.
The developing markets of Asia and Latin America offer substantial long term
growth opportunities. In Asia in particular, we are well placed to take
advantage of developing economies and nascent staffing industries. Empresaria
now operates in China (and is looking to increase its investment there in 2008),
India, Thailand, Malaysia, Singapore, Indonesia and the Philippines. We are
experiencing rapid growth in each of these countries and foresee a continuation
of this trend in 2008.
Across all regions, Empresaria has a broad mix of temporary and permanent
staffing operations with a group wide split of net fee income in 2007 of 72%:28%
temporary to permanent.
Miles Hunt
Chief Executive
17 April 2008
Operational review
UK
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
presence.
Financial review
Financial performance
Revenue
Group revenue rose by £72.3m (96%) in the year. Like for like sales increased by
20%.
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
business.
Profitability
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
world.
Taxation
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
40%.
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.
Dividend
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.
Acquisitions
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
services.
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
relationships.
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
Group.
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
UK.
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
(£0.7m).
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
expansion.
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
£1.9m.
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
ASSETS
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
========== ==========
LIABILITIES
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
EQUITY
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
Consolidated
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
-----------------------------------------------------------------------------------------------------------------
Current
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
-----------------------------------------------------------------------------------------------------------------
Non-current
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
made).
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.
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