Final Results

RNS Number : 7621P

Empresaria Group PLC

31 March 2009

 



EMPRESARIA GROUP PLC PRESS RELEASE

Revenue up 41% and net fee income increases by 21% as Empresaria continues global expansion

Significant growth in more resilient temporary business and overseas operations 

Crawley, UK: 31 March 2009:- Empresaria Group plc, the AIM-quoted international specialist staffing company, today announced strong growth in revenue and gross profit for the year ended 31 December 2008. Further progress has also been made in diversifying its operations internationally and growing net fee income from its contract and temporary businesses.

Revenue increased by 41% to £207.7 million, net fee income was up 21% to £51.5 million and adjusted profit before tax grew 3% to £6.4 million. Adjusted earnings per share reduced from 9.2p to 8.6p.

The Group also announced that 76% of its net fee income was generated by its temporary and contract businesses, compared to 72% in 2007.

The contribution from the Group's international businesses grew significantly, contributing 59% of net fee income, up from 51% last year.

Empresaria has operations in 20 countries through more than 130 offices and with more than 1,000 staff.

Chairman Tony Martin commented, '2008 was a satisfactory year for the Group in what was an increasingly challenging global economic environment.  

The Group is in the early stages of its development. Investment is heavily focused on emerging economies and staffing markets, in particular those that are relatively new to the concept of flexible employment solutions. Our objective is to establish a footprint in those markets where we anticipate staffing industry development over time. Our priority at this stage is to establish and grow this business base, delivering high quality services. In each case we have been investing for growth and sustainable returns rather than short term profit, although we have seen profits grow in individual companies and markets as they develop. In each of our geographical territories our market share is relatively small, leaving significant scope for expansion.  

With the steps that have already been taken and that are planned to shield the Group against the present slowdown and with the growth opportunities that are apparent even now, Empresaria has started the current year with optimism, although we are, at the same time, realistic as to the current market challenges. Any assessment of outlook for the year is difficult given the prevailing uncertain economic outlook; however, the Board remains confident of the prospects for the Group.'

A presentation of these results will be made to analysts and investors at 9.00am on 31 March 2009 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  

Nicholas How, Singer Capital Markets Ltd:              020 3205 5000

Full Stock Exchange announcement follows:

  Empresaria Group plc

Preliminary Announcement for the Year Ended 31 December 2008

Headlines 2008                                

Financial headlines

Revenues up 41% to £207.7m (2007: £147.8m)

Gross profit up 21% to £51.5m (2007: £42.4m)

Adjusted profit before tax* up 3% to £6.4m (2007: £6.2m)

Adjusted operating profit* up 9% to £7.5m (2007: £6.9m)

Adjusted earnings per share** 8.6p (2007: 9.2p)

Operating profit of £2.4m (2007: £6.7m)

Profit before tax of £1.3m (2007: £6.0m)

(Loss) / earnings per share of (4.8)p (2007: 8.4p)

Group cash at bank at year end £5.7m (2007: £4.1m)

Group net debt at year end £9.1m (2007: £4.2m)

Proposed dividend of 0.35p (2007: 0.55p)

Operational headlines

A year of continued revenue growth with strong performance into the last quarter

Expansion into new international markets (Finland, Estonia and Romania)

76% of gross profit from more resilient temporary staffing

Significant financial contribution from recent investment in South America

Strong performance from German operations

Prompt and decisive action taken to equip our businesses for a more demanding market in 2009

Financial Highlights

Overview of performance	2008	2007	2006	2005	2004
Revenue (£m)	207.7	147.8	75.5	54.1	45.4
Gross Profit (£m)	51.5	42.4	21.8	15.4	13.1
Adjusted Profit Before Tax (£m) *	6.4	6.2	2.9	2.2	1.4
Adjusted Operating Profit (£m) *	7.5	6.9	3.5	2.5	1.7
Adjusted Earnings per share (pence) **	8.6	9.2	7.2	5.7	4.2
Operating Profit (£m)	2.4	6.7	3.5	1.9	1.1
Earnings per share (pence)	(4.8)	8.4	6.7	3.1	1.4
Proposed dividend per share (pence)	0.35	0.55	0.5	0.45	0.4

*      Figures based on underlying profits excluding amortisation of intangible assets and any exceptional items.  

**    See reconciliation in note 2.

The amounts disclosed for 2004 to 2005 are stated on the basis of UK GAAP because it is not practicable to restate amounts for periods prior to the date of transition to IFRSs. The principal difference between UK GAAP and IFRSs is amortisation of goodwill as it applies to Empresaria.

Our Business

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 breakdown the highlights for the 'Rest of the World' region into the individual regions within this group.                        

UK	Financial highlights			2008	2007
The UK Group provides permanent and temporary staffing solutions across four main sectors; Construction and Property Services, Financial Services, Supply Chain and Other Brands.	Revenue (£m)			83.6	81.2
	Net Fee Income (£m) ¹			20.9	21.0
	Adjusted Operating Profit (£m) ²			3.8	4.0
	Number of Trading Companies			18	18
	Average number of Employees			281	265
Continental Europe	Financial highlights			2008	2007
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, Finland, Slovakia and the Czech Republic.	Revenue (£m)			92.1	52.4
	Net Fee Income (£m) ¹			22.9	16.8
	Adjusted Operating Profit (£m) ²			3.0	2.5
	Number of Trading Companies			13	10
	Average number of Employees			278	206
Rest of the World	Financial highlights			2008	2007
The Group has interests in companies based in Japan, South East Asia, Australia, India, China and South America.	Revenue (£m)			32.0	14.2
	Net Fee Income (£m) ¹			7.7	4.6
	Adjusted Operating Profit (£m) ²			0.7	0.4
	Number of Trading Companies			21	21
	Average number of Employees			342	197

¹ Net fee income is equivalent to gross profit.

² Figures based on underlying profits excluding amortisation of intangible assets and any exceptional items.  

Chairman's Statement

Overview 2008 

2008 was a satisfactory year for the Group in what was an increasingly challenging global economic environment. Revenues and net fee income increased significantly in the year, underlying profit levels remained constant and the mix of business continued to change with the majority (59%) of net fee income being derived from outside the UK (2007: 51%).

Group strategy

During 2008, Empresaria continued to implement its strategy of developing an international specialist staffing group balanced both in terms of sector focus and geographical coverage. In the year, the Group invested in a number of small companies as well as start-up operations and new branches for the existing network. It now operates through approximately 140 individual branches, spread over 20 different countries and with more than 1,000 internal staff.  

The Group is in the early stages of its development. Investment is heavily focused on emerging economies and staffing markets, in particular those that are relatively new to the concept of flexible employment solutions. Our objective is to establish a footprint in those markets where we anticipate staffing industry development over time. Our priority at this stage is to establish and grow this business base, delivering high quality services. In each case we have been investing for growth and sustainable returns rather than short term profit, although we have seen profits grow in individual companies and markets as they develop. In each of our geographical territories our market share is relatively small, leaving significant scope for expansion.  

This geographic diversity is aligned to a management equity philosophy, enabling business managers to hold significant equity stakes in their business. This ownership culture, combined with a decentralised management structure and a balance of industry sector exposure, has in previous market downturns contributed significant, valuable resilience and flexibility to our operations.

The rapid change in the economic environment poses tough challenges to all companies but equally creates opportunities. Our focus is on managing within the current constraints of an increasingly difficult trading environment whilst being aware of, and attuned to, market opportunities. We view the Group as a portfolio of companies, in each case supported by us as they develop and grow. These holdings are constantly reviewed in terms of performance levels and their potential to contribute to Group success.

Financial performance

Revenues for the year ended 31 December 2008 increased by 41% to £207.7m and net fee income increased by 21% to £51.5m. Profit before tax (adjusted for intangible amortisation and exceptional items) increased by 3% to £6.4m. The Group did incur one off exceptional costs of £4.8m in the year which reduced statutory profits. These exceptional costs related to asset impairments for certain of our portfolio companies and restructuring costs. Restructuring costs incurred or provided for totaled £1.6m and the actions taken are expected to reduce annual operating costs by approximately £3.0m in 2009.  

Although trading cash inflows were £4.6m (2007: £1.4m), net debt increased in the year to £9.1m from £4.2m reflecting the revenue growth of the Group with the resultant increase in working capital requirements as well as continued investment activity. In December 2008 the Group increased its revolving credit facility with HSBC to meet its financing requirements, details of which are set out in the Financial Review.

  Chairman's Statement (continued)

Empresaria's people

Empresaria's success is built on the passion, commitment and hard work of our people. In increasingly challenging market conditions, our ability to adapt and to seek out the opportunities that exist depends on the flexibility, support and positive attitude of all of those working in the Group. Now, more than ever, we would like to take this opportunity to thank them for their contribution to our success.

Current trading and outlook 

As stated in the trading statement in January the Group was able to grow revenues during the last quarter of 2008, counter to industry and market trends.  

Our Continental European operations, particularly in Germany, have been affected by the longer than anticipated factory shut downs in January which, combined with reduced demand for technical workers within the manufacturing sectors, has led to a decline in revenues in the first few months of the year.  

The UK and Rest of the World regions have started the year in January in line with expectations. Performance in February was more mixed. The Rest of the World region has continued to show year on year growth at revenue and net fee income levels and the UK has continued to grow in revenue terms. However UK net fee income year to date is down on the prior year. 

With the steps that have already been taken and that are planned to shield the Group against the present slowdown and with the growth opportunities that are apparent even now, Empresaria has started the current year with optimism, although we are, at the same time, realistic as to the current market challenges. Any assessment of outlook for the year is difficult given the prevailing uncertain economic outlook; however, the Board remains confident of the prospects for the Group.

Tony Martin

Chairman

30 March 2009

   Chief Executive's Review

Performance review 2008

In 2008 the Group generated organic growth from both established Group operations and recent new additions. We entered new markets (including Finland, Estonia and Romania) and new sectors (including engineering in China, corporate training in SE Asia and healthcare in the Nordics and the Baltics). In addition, we added new fee earners where growth opportunities allowed, strengthened our central management team and invested in new financial management systems.  

We started 2008 expecting to experience more challenging trading conditions at some point in the year. Caution as to the market outlook prompted us to call off negotiations on a number of potential investments in Europe and South America as well as reduce the planned number of start-up investments and new branch openings. However, trading conditions over the first three quarters remained benign across our markets. Only in the financial services sector did we see evidence of significant market deterioration and, despite this, we were still able to generate significant profits from our financial services companies in London and Tokyo. Despite the change in the economic environment in the last quarter, the Group continued to grow revenues.  

In the UK, the Construction and Property Services sector continued its strong organic growth, driven principally by demand within the transport and infrastructure industries. This was supported by a consistent contribution from our Financial Services and Other Brands. Trading in the last quarter of 2008 for our Supply Chain division declined reflected challenging conditions within the retail sector. 

In Continental Europe, Headway, our German business, which is by some margin the largest of our operations, grew revenues by 7% in the year. Growth rates stalled in the last quarter, reflecting the impact of a weakening German economy. In July 2008 we invested in MediradiX, a supplier of medical staff operating in Finland and Estonia, which made a positive contribution in the second half of the year and continues to perform well.

Our Rest of the World division grew revenues and net fee income in 2008 significantly ahead of the previous year, mainly from a combination of start-ups and small acquisitions made in 2006 and 2007. Alternattiva in Chile contributed strongly in its first full year in the Group.

Market and Business Overview

Empresaria's strategy has been to gain access to international growth markets and to reduce exposure to individual economies through geographic and sector diversification. Whilst, as a specialist staffing organisation our financial performance is somewhat dependent on the fortunes of the specific markets we serve, our strategy has proven successful over time and given the relatively low market share of our companies there remains scope to grow share even in more challenging trading conditions.

Over the last six months we have seen a substantial change in the global economy. In the face of this change we expect the Group to be resilient relative to the staffing industry as a whole, aided by the fact that the majority of our net fee income is derived from more stable temporary staffing operations and because of our strong ownership culture. The sense of responsibility that this culture engenders, and the levels of creativity and entrepreneurialism that it generates, sets Empresaria apart from more traditional business structures.

Due to challenging market conditions, and the expectation that it will take time for the global economy to see any material improvement, the Group has adjusted its short term priorities and approach. We look at the Group as an investment portfolio with each company challenged, monitored and, above all, assisted in achieving its growth plans. Where Group companies have been adversely affected by the economic conditions, represent a commercial risk or have limited growth potential, we are taking appropriate action.  

  Chief Executive's Review (continued)

In some cases this has led to a write down in the carrying value of investments in our balance sheet. This not withstanding, in the current economic climate we still have a number of strong and successful businesses that are growing and we are committed to provide the resources required to support this growth.

Miles Hunt

Chief Executive

30 March 2009

  Operational Review

UK 

Revenues from UK operations increased 3% to £83.6m (2007: £81.2m) whilst net fee income was slightly lower at £20.9m (2007: £21.0m). This apparent disparity reflects the growth in temporary revenues in our Construction and Property Services sector which operate at lower margins and a decline in the margin of historically higher margin temporary revenue streams, such as our Public Sector businesses which we divested during the year. This is reflected in the reduction in UK gross profit margin from 25.9% to 25.0%. The mix of temporary staffing net fee income to permanent recruitment net fee income remained stable at 58:42.

Within our Construction and Property Services sector our FastTrack brand continued to show strong growth, benefitting from its focus on the infrastructure market. This growth was partially offset by the worsening markets faced by our housing sales and shop-fitting businesses.

Our Other Brands sector performed well in generally tightening markets. Greycoat Placements (domestic staff) benefitted from its leading position in a resilient market segment, whilst McCall (recruitment to recruitment) and Bar 2 (payroll services) also grew revenues. The Recruitment Business (creative design) also delivered a good performance.

Within the Financial Services sector LMA, our banking operations brand, saw a 31% growth in revenues; a strong performance from its temporary operation offset lower permanent sales, which weakened in the second half year. Towards the end of the year both of the Insurance businesses were merged, allowing our clients to benefit from a more comprehensive, integrated service under the Mansion House brand.

After trading ahead of expectations in the first eight months of the year, our Supply Chain businesses experienced reduced demand driven by the sharp decline in the UK retail market. As a result we have reorganised our operations and adjusted the cost base.

The outlook for our UK operations in 2009 is mixed. We expect our Construction and Property Services sector to perform well due to its focus on infrastructure and transport projects. The Financial Services and Supply Chain sectors are likely to face a challenging trading environment and will focus on cost control and developing solutions for their clients appropriate to their changed market conditions. Our Other Brands should have sufficient strength and diversity to remain profitable.

Continental Europe

2008 was a year of continued growth. Sales grew from £52.4m in 2007 to £92.1m in 2008 and net fee income increased from £16.8m to £22.9m. In Germany, our most important market, sales grew by 7% for the full year (on a proforma basis). In the first half year sales growth was 14% and in the second half, sales increased by 1%, reflecting a sudden change in market conditions in the last quarter. The decline in sales growth in the latter half of the year stems from the generalist businesses only, with the specialist businesses performing very well, particularly the Engineers division which almost doubled its sales and the Logistics division which increased revenues by over 30% in the year. Changing product mix, pricing pressure and factory closings in December resulted in a drop in gross margin in the last quarter of the year, however targeted cost savings taken over the course of the year compensated at the net profit level.  

In July 2008, we invested in a 60% stake in MediradiX, a healthcare business focusing on doctors, dentists and nurses, mainly recruited in Estonia, but working in Finland. Consistent historic growth and limited exposure to economic cycles are the main features of this business. 

  Operational Review (continued)

In reviewing our European investment portfolio, we decided at the end of the year to sell our interest in our investment in Poland to local management. The business was originally established to source Polish workers for the UK and Ireland. This 'work abroad' market has been in recent decline and has little prospect of short term recovery.

Rest of the World

Revenues grew 125% to £32.0m (2007: £14.2m) and net fee income grew 67% to £7.7m (£4.6m). Growth was generated largely through a combination of strong organic growth in South East Asia and the first full year contribution from Alternattiva in Chile. The difference between revenue and net fee income growth rates reflects the increasing contribution from temporary staffing businesses in the region, particularly from South America.

In South East Asia we operate three brands, Monroe Consulting (executive recruitment), Advanced Career (payroll services and temporary staffing) and Learning Resources (corporate training). Each brand has grown substantially in the year: Monroe adding both new branches and fee earners in the year, Advanced Career passing the 2,500 contractor mark and Learning Resources rapidly developing into a regional force in the corporate training sector with over forty trainers and support staff. All these operations were established over the last three years and are in the early stages of development, with some branches still to move to profitability.  

Our Japanese and Australian businesses generated net fee income in the year at similar levels to 2007. Our Japanese operations are expected to benefit in 2009 from FINES (fashion industry staffing) contributing for the first time as a subsidiary company. In Australia, although TRB (creative sector) is continuing to grow, our IT staffing operations continue to underperform and we have acted to reduce costs.

In July 2008 we invested in a new Shanghai based joint venture, Empresaria Intelligence, backing into this vehicle the assets and goodwill of Shanghai Intelligence, one of mainland China's principal recruitment businesses focusing on technical engineering operations.

Our Indian company, IMS, set up in 2006, was profitable in the last quarter and is benefiting from the demand from more developed countries for a range of low cost resourcing and HR related solutions.

In Chile, Alternattiva has made a significant financial contribution, despite the requirement to adapt to changing regulation in the Chilean staffing sector. The company continues to develop innovative outsourcing solutions and pricing structures to its retail and telecommunications clients and is seeking to develop new revenue streams in 2009 from training and permanent recruitment operations.

  Financial Review

Introduction

International Financial Reporting Standards (IFRS) require that items of income and expenditure that are material in terms of their nature or amount be disclosed separately. Certain items have been disclosed as exceptional and the Board considers that the information presented in the tables in this report provides useful additional information relating to the underlying performance of the Group. This information should not be considered as alternative but supplementary to the full IFRS income statement on page 18.

Group results

Group revenue increased in 2008 by 41% to £207.7m (2007: £147.8m). Revenues on a like for like basis, from businesses owned throughout the current and prior year, increased by £10.1m, with increases achieved in all regions.

Revenue
	Reported	Like for like increase/ (decrease)	Like for like (decrease) / increase	Effect of (disposals) / acquisitions (1)	Foreign exchange (2)	Reported
	2007	Temporary	Permanent			2008
	£m	£m	£m	£m	£m	£m
UK	81.2	6.9	(0.5)	(4.0)	-	83.6
Continental Europe	52.4	1.6	(0.5)	31.9	6.7	92.1
Rest of World	14.2	2.0	0.6	13.6	1.6	32.0
Total	147.8	10.5	(0.4)	41.5	8.3	207.7
(1)	All businesses acquired or disposed in 2007 and 2008.
(2)	Adjusts 2007 reported results to 2008 exchange rates.

Gross profit or net fee income was 21% higher at £51.5m (2007: £42.4m). Organic growth across all regions from temporary contracts was partly offset by a fall of £0.4m in permanent net fee income in the year. 

Financial Review (continued) 

Net fee income
	Reported	Like for like increase	Like for like (decrease) / increase	Effect of acquisitions (1)	Foreign exchange (2)	Reported
	2007	Temporary	Permanent			2008
	£m	£m	£m	£m	£m	£m
UK	21.0	0.4	(0.5)	-	-	20.9
Continental Europe	16.8	0.2	(0.5)	4.3	2.1	22.9
Rest of World	4.6	0.2	0.6	1.8	0.5	7.7
Total	42.4	0.8	(0.4)	6.1	2.6	51.5
(1)	All businesses acquired or disposed in 2007 and 2008.
(2)	Adjusts 2007 reported results to 2008 exchange rates.

Gross margin, the ratio of net fee income to revenue, decreased as expected to 25% in 2008 (2007: 29%). The full year effect of the Group's investments in 2007 increased the proportion of net fee income from temporary placements to 76% (2007: 72%). This change in mix accounts for 2% of the decrease in gross margin. In addition a change in mix of margin within the temporary business, in particular a full year of Alternattiva and continued strong growth in the UK Construction and Property Services sector, reduced the average margin from temporary placements. 

Adjusted operating profit

Operating profit, before exceptional items and intangible amortisation, increased by 9% to £7.5m (2007: £6.9m). The net impact of acquisitions and disposals added £2.0m in 2008 but this was partly offset by an investment in start-ups in the South East Asia region of £1.4m.  

Exceptional items

In anticipation of more challenging economic conditions, the Group focused on identifying potential reductions to the cost base and ways of improving the Group's efficiency. As a consequence the Group has taken an exceptional charge of £4.8m in the year in respect of businesses sold or closed, goodwill impairments and restructuring costs. An analysis of the cash and non-cash charge is set out below:  

	Asset impairments	Cash spent in 2008	Cash to be spent in 2009	Total
	£m	£m	£m	£m
UK	1.4	0.2	0.3	1.9
Continental Europe	1.4	0.5	-	1.9
Rest of World	0.4	0.6	-	1.0
	3.2	1.3	0.3	4.8

Financial Review (continued) 

The asset impairments relate to the Group's exit from the public sector in the UK, reported at the half year, and the sale of investments in the UK, Poland and China. The cash spend relates to one-time restructuring and redundancy costs in the UK and Continental Europe. These actions are expected to reduce annual operating costs by approximately £3.0m in 2009. In the Rest of World region, the cash spend relates to the impact of significant legislative changes in Chile.

Interest

Net finance costs amounted to £1.0m (2007: £0.6m) in 2008. The increase in the period was due to higher average borrowings. Interest cover, the ratio of operating profit adjusted for exceptional items and intangible amortisation to interest on bank loans and overdrafts was 6.5 times (2007: 9.5 times).

Taxation

The total tax charge for the year was £1.8m (2007: £1.9m). Tax on adjusted profits before exceptional items and goodwill amortisation was £2.1m representing an effective rate of 32.8% (2007: 31.0%). This is higher than the standard rate in the UK of 28.5% due to a combination of unrelieved losses and the mix of profits in the different jurisdictions in which the Group operates.

(Loss) / earnings per share

The diluted loss per share, based on profits after taxation and minority interest charges, was 4.8p (2007: earnings of 8.4p). The deficit is principally due to asset impairments, including goodwill write downs in the year which do not attract tax relief or an adjustment for minority interest. To gain a better understanding of the underlying performance for the year, the Group also reports earnings per share excluding items classified as exceptional and intangible amortization; adjusted earnings per share decreased by 7% to 8.6p (2007: 9.2p).

Dividend

During the year the Group paid a dividend in respect of the year ended 31 December 2007 of 0.55p per share. The Board is proposing a dividend of 0.35p per share which, if approved, will be paid on 17 August 2009 to shareholders on the register on 17 July 2009.

The proposed reduction in dividend payable reflects the more challenging market conditions anticipated in 2009 and the desire of the Board to preserve cash in order to support better the development opportunities within the Group.

Investments

The Group invested £0.3m in a number of start-ups during the year and took majority shareholdings in three small businesses within its UK Supply Chain operations. In addition, in April 2008 the Group acquired a majority stake in Lumleys, a UK provider of in-house catering staff, for a total cash consideration of £0.5m.

Empresaria expanded its operations in China in July 2008 with an investment in Intelligence HR Consultants for a consideration of £0.4m. This business, based in Shanghai, specialises in providing engineers and technicians to the manufacturing industry. In July 2008, the Group invested £1.3m for a 60% interest in MediradiX, which is based in Finland and Estonia. MediradiX supplies medical professionals to the Finnish market.

  Financial Review (continued) 

The Group invested a further £2.0m contingent consideration in Alternattiva in Chile and increased shareholdings in its existing businesses. Contingent consideration payable in 2009 is expected to be £0.1m and amounts payable to increase our shareholdings in existing businesses is expected to be £0.5m.

Cash flow

Net borrowings increased by £4.9m in the year to £9.1m. The Group increased adjusted EBITDA (earnings before interest, tax, depreciation and amortisation and adjusted for exceptional items) by 9% to £8.3m. A summary of the cash flow is set out below:

Summarised cash flow		2008	2007
		£m	£m
Operating profit before exceptional items & intangible amortisation		7.5	6.9
Depreciation		0.8	0.7
		8.3	7.6
Working capital		(3.2)	(5.1)
Capital expenditure		(0.5)	(1.1)
Trading cash flows		4.6	1.4
Interest and tax		(2.8)	(2.0)
		1.8	(0.6)
Cash spend on exceptional items		(1.3)	-
Investments		(4.5)	(1.4)
Other		(1.4)	(0.7)
		(5.4)	(2.7)
Net debt brought forward		(4.2)	(1.3)
Exchange differences		0.5	(0.2)
Net debt carried forward		(9.1)	(4.2)

The summarised cash flow is derived from the cash flow statement and note 3.

Trading cash flows increased by £3.2m to £4.6m and would have been higher had debtor days not increased during November and December at two of the Group's larger businesses. Extended plant shutdowns in Germany and computer systems issues at FastTrack in the UK resulted in approximately £2.0m of additional working capital funding being necessary. Since year end, this situation has already substantially improved. Strong efforts will be made to improve cash collection in 2009.

Cash flow on exceptional items comprised £1.3m of restructuring and redundancy costs and the impact of legislative changes in Chile.

  Financial Review (continued) 

The Group invested a further £4.5m on development activity, which comprised £2.2m of new investments and £2.3m of deferred consideration and minority buy-ins of existing businesses. Full details are set out in the Group's 2008 Annual Report to be published shortly.

In the 2007 Annual Report, we commented on the impact of the government's abolition of managed service companies and identified a negative cash flow impact on the Group. In practice this has taken longer than anticipated and approximately £0.6m was incurred in 2008 with the remainder likely to fall in 2009. 

Bank facilities

The Group maintains a range of facilities appropriate to manage its working capital requirements and to fund selective investment activities. At the year end the Group's facilities comprised:

Type	£m	Expiry
Term loans	1.8	2011 / 2012
Revolving credit facility	7.5	Dec 2011
Invoice discounting facilities	13.8	Annual
Overdrafts	7.1	Annual
Total	30.2

The Group's bank covenants comprise net debt:EBITDA which must not exceed 2.5 times, interest cover, which must exceed 3 times and debt service cover, which must exceed 1. Compliance with these covenants is tested semi-annually. At 31 December 2008, the Group reported substantial headroom under the covenants with net debt:EBITDA being 1.1, interest cover being 8.2 and debt service cover being 3.5. 

Financial control

During 2008, the Group commenced a project to update its systems for the collection and consolidation of data from its 52 businesses around the world. The upgrade to the consolidation process places no risk to the underlying systems utilised by each operating company but collects data in a standardised format from those underlying systems and provides a platform for data consolidation and analysis. The system is expected to be fully rolled out during 2009, to improve the speed of financial reporting and strengthen the Group's system of internal financial control. 

Principal risks and uncertainties

The Group has a process that identifies certain risks that could affect business operations and hence the financial results of Empresaria. Further information on this process is set out in the Corporate Governance report in the Group's 2008 Annual Report to be published shortly.

  Financial Review (continued) 

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 strength 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 is 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.

Operational risks

Empresaria's businesses are highly dependent on IT systems for the day to day running of their operations. As a consequence there is an ongoing review process to ensure that systems are maintained adequately and that repairs and upgrades are made as necessary. It is Group policy that each business has a process in place to protect against potential malicious attacks to its IT systems. In common with many organisations, although preventative procedures are in place, there remains a residual risk of disruption to voice and data infrastructure.

Financial risks

The Group maintains a comprehensive insurance programme with limits and deductibles that are set so as to optimise the total cost of risk borne by the Group. Empresaria works with underwriters and insurance brokers to ensure appropriate cover is in place. As with all businesses there is the risk of failure of financial controls. The Group's internal control framework is set out in the Corporate Governance report in the Group's 2008 Annual Report to be published shortly.

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, a significant global economic downturn would result in reduced revenues and profits for the Group.

  Financial Review (continued) 

Legislative change

The Group'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.

Currency exposures

The Group operates in 20 countries and is exposed to potential changes in the values of 15 different currencies. The revenues and costs of each of the Group's businesses are typically in the currency of operation and Empresaria has little exposure to transactional risk. The Group's reporting currency is sterling and the results of each business are translated into sterling at average rates for the year. Empresaria does not seek to hedge translation risk as there is to some degree a natural hedge from operating in a wide range of countries. 

Treasury risks

The Group operates a central treasury function which manages and monitors external and internal funding requirements and the following treasury risks:

i) Credit risk

ii) Liquidity risk

iii) Market risk

The Group's policies and procedures to manage these risks are set out in the Group's 2008 Annual Report to be published shortly.  

Going concern

The Board has undertaken a recent and thorough review of the Group's budget, forecasts and associated risks and sensitivities. Despite the significant 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. Further details on going concern are found in the Group's 2008 Annual Report to be published shortly.

Stuart Kilpatrick

Group Finance Director

30 March 2009

Consolidated Income Statement
		Before Intangible amortisation & exceptional items	Intangible amortisation & exceptional items	2008	Before Intangible amortisation & exceptional items	Intangible amortisation & exceptional items	2007
				Total			Total
		£m	£m	£m	£m	£m	£m
Continuing operations
Revenue		207.7		207.7	147.8		147.8
Cost of sales		(156.2)	-	(156.2)	(105.4)		(105.4)
Gross profit		51.5	-	51.5	42.4	-	42.4
Intangible amortisation		-	(0.3)	(0.3)	-	(0.2)	(0.2)
Administrative costs		(44.0)	(4.8)	(48.8)	(35.5)	-	(35.5)
Operating profit		7.5	(5.1)	2.4	6.9	(0.2)	6.7
Finance income		0.3	-	0.3	0.3	-	0.3
Finance costs		(1.3)	-	(1.3)	(0.9)	-	(0.9)
Net finance cost		(1.0)	-	(1.0)	(0.6)	-	(0.6)
Share of operating loss from associates		(0.1)	-	(0.1)	(0.1)	-	(0.1)
Profit before tax		6.4	(5.1)	1.3	6.2	(0.2)	6.0
Income tax expense		(2.1)	0.3	(1.8)	(1.9)	-	(1.9)
(Loss) / profit for the year		4.3	(4.8)	(0.5)	4.3	(0.2)	4.1
Attributable to:
Equity holders of the parent		3.0	(4.6)	(1.6)	2.7	(0.2)	2.5
Minority interest		1.3	(0.2)	1.1	1.6	-	1.6
		4.3	(4.8)	(0.5)	4.3	(0.2)	4.1
(Loss) / earnings per share from continuing operations (pence)
Basic and undiluted (loss) / earnings per share				(4.8)			8.4

Consolidated Balance Sheet
		2008		2007
		£m		£m
ASSETS
Non-current assets
Property, plant and equipment		2.3		1.9
Goodwill		30.6		22.0
Other intangible assets		3.2		2.7
Interests in associates		0.1		1.0
Deferred tax assets		0.4		0.9
		36.6		28.5
Current assets
Trade and other receivables		33.5		32.4
Cash and cash equivalents		5.7		4.1
		39.2		36.5
Total assets		75.8		65.0
LIABILITIES
Current liabilities
Trade and other payables		25.6		24.7
Corporation tax payable		2.6		2.1
Short-term borrowings		5.4		6.2
		33.6		33.0
Non-current liabilities
Long-term borrowings		9.4		2.1
Deferred tax liabilities		0.6		0.9
Total non-current liabilities		10.0		3.0
Total liabilities		43.6		36.0
Net assets		32.2		29.0
EQUITY
Share capital		1.7		1.7
Share premium		17.0		16.6
Merger reserve		1.5		1.5
Translation reserve		5.6		1.0
Other reserves		0.1		(0.1)
Retained earnings		3.4		5.3
Equity attributable to equity holders of the parent		29.3		26.0
Minority interest		2.9		3.0
Total equity		32.2		29.0

Consolidated Statement of Recognised Income and Expense
		2008		2007
		£m		£m
Available-for-sale investments: valuation gains taken to equity		0.1		-
Exchange difference on net assets of overseas subsidiaries		4.5		0.9
Net income recognised directly in equity		4.6		0.9
(Loss) / profit for the period		(0.5)		4.1
Total recognised income and expense for the period		4.1		5.0
Attributable to:
Equity holders of the parent		3.0		3.6
Minority interest		1.1		1.4
		4.1		5.0

Consolidated Cash Flow statement
		2008		2007
		£m		£m
Net cash from operating activities		2.0		1.0
Cash flows from investing activities
Acquisition of new subsidiaries		(2.2)		(11.9)
Further shares acquired in existing subsidiaries		(2.3)		(1.4)
Cash acquired with subsidiary acquired		0.7		2.2
Forward contract settlement		(2.0)		-
Investment in associates		-		(0.4)
Loans made to associates		(0.8)		(0.4)
Purchase of property, plant and equipment		(0.5)		(1.1)
Finance income		0.3		0.1
Net cash used in investing activities		(6.8)		(12.9)
Cash flows from financing activities
Proceeds from issue of share capital		-		11.5
Proceeds from bank loan / borrowings		6.0		4.0
Payment of loan		(0.3)		(0.3)
Increase / (decrease) in invoice financing facilities		1.9		(1.1)
Finance cost		(1.3)		(0.7)
Dividends paid		(0.2)		(0.2)
Dividends paid to minority shareholders in subsidiary undertakings		(0.8)		(0.5)
Net cash from financing activities		5.3		12.7
Net increase in cash and cash equivalents		0.5		0.8
Foreign exchange		1.1		-
Cash and cash equivalents at beginning of period		4.1		3.3
Cash and cash equivalents at end of period		5.7		4.1

Notes to the Consolidated Financial Statements

Year ended 31 December 2008

1 Basis of preparation and general information

The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 December 2008 and 2007, but is derived from those accounts. Statutory accounts for 2007 have been delivered to the Registrar of Companies and those for 2008 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 2007 and 2008.

The consolidated financial statements are for the twelve months ended 31 December 2008. They have been based on the Group's financial statements which are prepared in accordance with International financial reporting standards as adopted for use in the EU.

2 (Loss) / earnings per share

Basic and diluted (loss) / 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 (loss) / earnings and weighted average number of shares used in the calculations are set out below.

				2008		2007
(Loss) / profit after tax attributable to equity shareholders of the parent (£m)				(1.6)		2.5
Weighted average number of shares ('000s)				33,595		30,192
Basic and diluted (loss) / earnings per share (pence)				(4.8)		8.4
Adjusted earnings per share				2008		2007
				£m		£m
Profit attributable to equity shareholders of the parent				(1.6)		2.5
Add back:
Exceptional items				4.8		0.1
Intangible amortisation				0.3		0.1
Tax on Intangible amortisation and exceptional items				(0.3)		-
Minority interest on Intangible amortisation and exceptional items				(0.3)		-
Adjusted earnings				2.9		2.7
Adjusted earnings per share (pence)				8.6		9.2

3 Notes to cash flow
a) Cash flows from operating activities
			2008		2007
			£m		£m
(Loss) / profit for the year			(0.5)		4.1
Adjustments for:
Depreciation			0.8		0.7
Intangible amortisation			0.3		0.1
Taxation expense recognised in income statement			1.8		1.9
Exceptional charges			4.8		0.1
Cash paid for exceptional items			(1.3)		-
Share of losses in associates			0.1		0.1
Net finance cost			1.0		0.6
Decrease / (Increase) in trade receivables			1.1		(5.1)
Decrease in trade payables			(4.3)		(0.1)
Cash generated from operations			3.8		2.4
Income taxes paid			(1.8)		(1.4)
Net cash from operating activities			2.0		1.0
b) Components of cash and cash equivalents
			2008		2007
			£m		£m
Cash at bank			5.7		4.1
c) Movement in net borrowings
			2008		2007
			£m		£m
As on 1 January			4.2		1.4
Net decrease / (increase) in cash			(0.5)		(0.8)
Debts acquired on business acquisition			0.2		-
Loan repayments			(0.3)		(0.3)
Increase in borrowings			6.0		3.9
Foreign exchange			(0.5)		-
As on 31 December			9.1		4.2
Analysis of net borrowings
			2008		2007
			£m		£m
Cash and cash equivalents			(5.7)		(4.1)
Short term borrowings			5.4		6.2
Long-term borrowings			9.4		2.1
As on 31 December			9.1		4.2

4 Financial liabilities - borrowings
			2008		2007
			£m		£m
Current
Bank overdrafts			2.6		2.5
Amounts related to invoice financing			2.2		2.0
Current portion of bank loans			0.6		1.7
			5.4		6.2
Non-current
Bank loans			8.6		1.6
Other creditors			0.8		0.5
			9.4		2.1
Total financial liabilities			14.8		8.3

5 Business combinations

The Group made five acquisitions during the year (2007 - 4). The acquisitions have contributed £0.2m to the Group loss attributed to equity holders of the parent to the period ended 31 December 2008

6 Annual report and accounts

The annual report and accounts for the year ended 31 December 2008 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.

 

END

 

 

FR SDAFASSUSEFD