Final Results

RNS Number : 9558B

Empresaria Group PLC

11 March 2014

 

11 March 2014

Empresaria Group plc

("Empresaria" or the "Group")

Results for the year ended 31 December 2013

Empresaria, the international specialist staffing group, has delivered a strong growth in profit over the prior year with earnings per share up 73% on 2012, showing the benefit of our diversified business model.

Financial Highlights	2013	2012	% change	% change (constant currency)
Revenue	£194.4m	£194.3m	-	-
Net fee income	£42.6m	£43.9m	(3%)	(2%)
Operating profit	£5.5m	£4.4m	25%	34%
Adjusted operating profit*	£6.0m	£5.4m	11%	15%
Profit before tax	£4.9m	£3.6m	36%	49%
Adjusted profit before tax*	£5.4m	£4.6m	17%	23%
Earnings per share	5.2p	3.0p	73%
Adjusted earnings per share*	6.2p	5.0p	24%

·   Revenue stable with a change in mix, with permanent revenue up 6% and temporary staffing revenues down 0.5% on prior year

·   Net fee income (gross profit) diversified by geography (Continental Europe 33%, UK 37%, Rest of the World 30%)

·   Conversion ratio increased to 14.2% (2012: 12.0%)

·   Singapore start-up businesses deliver profit after two years of investment

·   Turnaround in Chile to deliver profit in 2013

·   Cost savings of £2.2m in Germany & Austria

·   28% reduction in reported net debt to £5.8m (2012: £8.1m)

* adjusted to exclude amortisation of intangible assets, exceptional items, gain or loss on disposal of business and movements in the fair values of options

Chief Executive Joost Kreulen said:

"In 2013 we have delivered a 17% growth in adjusted profit before tax over the prior year on stable revenues due to a focus on improving operational efficiency and maintaining a tight control of costs. This has resulted in the conversion ratio increasing to 14.2%. Improvements have been particularly marked in the Rest of the World region where the profits in Singapore and the turnaround in Chile supported a 40% increase in adjusted operating profit.

We follow a brand led growth strategy and will continue to invest in our existing businesses, with planned office openings in Kuala Lumpur, Hong Kong and Mexico City in the first half of 2014. Market conditions are improving in UK and Continental Europe and the economic forecasts are positive in all the countries in which we operate, so we see good opportunities to grow the business.

I am also delighted to announce that we have just acquired 51% of BW&P, a high quality search firm in the Technical & Industrial sector, which is based in Dubai and covers the Middle East region providing entry into a new region for Empresaria. Their management team have previously worked with Tony Martin, Zach Miles and I when they built up one of the leading staffing firms in Dubai and the UK and we see this investment as an exciting opportunity to build a leading brand in this important geographic region and deliver strong profit growth over the next few years."

 - Ends -

Enquiries:

Empresaria Group plc Joost Kreulen, Chief Executive Spencer Wreford, Group Finance Director	01342 711 430
Shore Capital (Nominated Adviser and Broker) Bidhi Bhoma / Edward Mansfield	020 7408 4090

A presentation of these results will be made to investors on 11 March 2014 and an edited copy of this will be made available late that morning on the Empresaria Group plc website: www.empresaria.com

Notes for editors:

·   Empresaria Group plc (AIM: EMR; Sector: Support Services, Staffing) applies a management equity philosophy and business model, with group company management teams holding significant equity in their own business.

Chairman's statement

Overview of performance

The world economy has demonstrated further volatility throughout 2013, therefore I am pleased that despite these market conditions we have delivered an impressive growth in profit and enter 2014 as a stronger company. The economic recovery in the UK and Continental Europe has gained momentum during the second half of the year, in particular in the UK and Germany, our two largest territories and whilst the economic forecasts for the emerging markets are down on recent levels, the GDP growth rates remain positive.

In 2013 Group revenue was flat at £194.4m (2012: £194.3m) with net fee income down 3% to £42.6m (2012: £43.9m). This was in part impacted by the disposal of our UK payroll services business in August. On an underlying basis revenues increased 0.5% with net fee income down only 1.5%, as margins were squeezed on temporary sales and training services. Despite this, and due to a focus on cost control, operating profit increased 25% to £5.5m (2012: £4.4m) and with lower interest costs, profit before tax increased 36% to £4.9m (2012: £3.6m). Following our continued purchase of minority interests from management earnings per share grew 73% to 5.2p (2012: 3.0p). We expect to reduce the number of these minority interest acquisitions over the next few years which will help free up cash from operations to reduce our net debt and enable management to make selective investments to accelerate the growth of the business.

The Group generated cash from operations of £7.8m (2012: £5.2m) which helped reduce our reported net debt by £2.3m to £5.8m at year end (2012: £8.1m).

I am also pleased to report that our exposure to claims for retrospective pay and social security in Germany is largely resolved, with all worker claims having been settled and no new claims able to be made. We believe we have fully provided for the social security exposure, with the 2010 year remaining subject to audit.

People
The success of the Group is dependent on having the right people in the right place and the Board would like to thank all of the Group's staff for their hard work, commitment and contribution over the last year.

The Group strategy and success is underpinned by our philosophy of management equity. Operating company management teams invest directly in their own businesses, thereby aligning management and shareholder interests. When we acquire first generation management equity we actively pursue a strategy of issuing second generation equity to incentivise senior managers to drive the next stage of development of their companies. We expect to issue second generation equity within a number of brands in 2014. This will typically involve setting a threshold profit limit and allowing minority shareholders to benefit from increases in profit over this limit. I am pleased that during 2013 we added seven new management shareholders to the Group.

Investments

We continue to invest in the business to grow future profits, with the organic development of the brands a key part of our strategy. During 2014 we will open new offices in Hong Kong, Kuala Lumpur and Mexico City. I am also pleased that in March 2014 we acquired a majority share in BW&P, a high quality search firm operating in Dubai and covering the Middle East region. The senior management team have an unrivalled experience in this territory and provides us with entry into a new geographic region and an opportunity to develop a leading brand.

Dividend

We continue to adopt a consistent dividend policy, whilst prioritising free cash flow for developing the Group and strengthening the balance sheet. For the year ended 31 December 2013, the Board is proposing to maintain the final dividend at 0.35p per share (2012: 0.35p per share) which, if approved by Shareholders at the Annual General Meeting, will be paid on 23 June 2014 to shareholders on the register at 23 May 2014.

Governance

The principle of sound corporate governance practices is core to our success as a Group. The diversified nature of the Group, now operating through 20 brands in 19 countries, means it is vital that a strong financial control culture and clear policies on corporate conduct and governance exist and are communicated and monitored effectively.  The Board develops the Group's corporate governance arrangements with reference to the UK Corporate Governance Code, making sure that the entrepreneurial freedom enjoyed by the operating companies is within a framework of clearly understood principles and controls.

Values & culture

We believe the Group offers a unique proposition to entrepreneurial managers who want to retain some ownership in their company while enabling them to develop and grow within a group environment that supports them and provides access to finance and staffing expertise. We are committed to develop the Group further by attracting and working with the best talent in the industry.

Outlook

Overall in the year we did what we said we would do. We delivered a strong growth in profits driven by strengthened more experienced management and by operational improvements in Germany and Chile, continued investment in Singapore to deliver a profitable contribution and maintaining a tight control of costs. With key operational issues resolved and a reduction in net debt we are a stronger company than a year ago. The directors are cautiously optimistic about the year ahead. Market conditions are improving in the UK and Continental Europe and whilst the Rest of the World is more challenging than in recent years, we continue to see good growth opportunities. We believe that the Group is well placed to deliver growth across our network and see exciting opportunities from the new investment in the Middle East. We will continue to invest in the business to deliver growth through a combination of organic development and external investments.

Regional review - UK

£'m	2013	2012	2011
Revenue	70.7	66.5	67.0
Net fee income	15.8	16.0	16.0
Adjusted operating profit	2.1	2.2	2.0
% of Group net fee income	37%	36%	34%
Average number of employees	197	201	201

Market conditions

There were clear signs of an economic recovery in 2013, with GDP growth of 0.7% in the second quarter and 0.8% in the third quarter and the International Monetary Fund is predicting growth of 2.4% for 2014. The growth has been lead by London and the service sector, although the manufacturing and construction sectors are now also showing signs of recovery. Consumer confidence has risen in the year, helped by increased house prices, which have benefitted from the Government's "help to buy" initiative. Business investment is still low but this is expected to change as the recovery takes hold. The Business Confidence Monitor (prepared by ICAEW and Grant Thornton) showed an improving trend throughout 2013 with the index rising from +4.2 in Q4 2012 to +37.2 in Q1 2014, the highest level in the monitor's 10 year history. After difficult market conditions over the last five years, the signs are more positive for an improved staffing market in 2014.

Performance in 2013

Revenue grew 6% to £70.7m (2012: £66.5m) with permanent sales up 2% and temporary sales up 7%. The temporary margin reduced by 1.5%, so overall net fee income fell by 1% to £15.8m (2012: £16.0m). This decline was due to a reduction of 0.5% in the Technical & Industrial sector and also the disposal of the payroll services business in August 2013 which reduced the temporary sales for the year and was at a higher margin than normal recruitment services. Adjusted operating profit of £2.1m was slightly down on prior year however, the underlying operating profit of the retained business increased by 1%.

Within the Technical & Industrial sector both permanent and temporary sales increased. Both of our brands have concentrated resources into their key offices, with small satellite offices closed, to both reduce costs and also better manage staff and compliance procedures. The airport work continued well, with the building of the new Terminal 2 at Heathrow airport nearing completion. The rail sector has shown signs of improving through the year and in general the outlook is positive going into 2014.

In Financial services revenue was up 1%, with market conditions improving in the banking sector. Overall there has been an investment in staff, including a new Actuarial team being developed in our Insurance brand and so costs were slightly up on prior year with a corresponding impact on the profit contribution.

In IT, digital & design the market conditions were positive and we delivered an 8% increase in sales. An investment in staff meant underlying profit was only marginally up on prior year.

In Retail we are selling new build properties. Profit was down on prior year as there was a lower overall quantity of new properties to market due to the success of the Government's "help to buy" scheme.

Within Other services, our recruitment-to-recruitment brand delivered a strong growth against prior year, albeit still much lower than historic profit levels. This is a useful barometer of the state of the recruitment market and we saw a broadening of the sectors taking on new staff through the year. Our other brand, providing staff for domestic services, saw a strong growth in sales and despite the costs of moving to new, larger offices delivered an increased profit. They have also invested in their catering services and are developing mainland European capabilities, initially for nannies.

Regional review - Continental Europe

£'m	2013	2012	2011
Revenue	76.9	83.2	102.7
Net fee income	13.9	15.7	19.7
Adjusted operating profit	1.8	1.7	2.2
% of Group net fee income	33%	36%	42%
Average number of employees	155	198	221

Market conditions

The Eurozone came out of recession in the year (which had lasted six quarters), driven by France and Germany and there were also general signs of improvement across the region, however the recovery remains fragile and growth rates generally low.

In Germany the GDP growth of 0.4% was lower than in 2012 but is forecast to grow in 2014 by 1.7% (source HSBC), with corresponding Purchasing Manager Indexes for services and manufacturing both above 50. Employment has been high with unemployment of 5.3% recorded in July 2013, the lowest level since reunification, leading to skills shortages across the economy.

Following the federal election in September a coalition was formed between the CDU party and the Social Democrats, which lead to an agreement between the parties on how to shape the future of Germany. This agreement includes proposals to limit assignments of temporary workers to 18 months (except when formally negotiated in a collective bargaining agreement) and the introduction of a minimum wage of €8.50 per hour from 2015. This follows the introduction of equal pay legislation in November 2012. Our German business is already paying above the proposed minimum wage level.

In Finland, a declining economy, ageing population and rising unemployment has lead to weaker public finances and spending limits being imposed. Whilst there remains a structural shortage of healthcare workers, the local authorities are under tight budget constraints and this is reducing current demand in the public health sector and creating pressures on margins.

Performance in 2013

Revenue decreased by 8% to £76.9m (2012: £83.2m), with net fee income down 11% to £13.9m (2012: £15.7m) as the introduction of equal pay legislation caused the temporary margin to reduce by 0.5%. Permanent sales fell 35%, after one-off sales in 2012. However the costs were controlled through the completion of the restructuring programme in Germany and Austria, helping to deliver an increased adjusted operating profit of £1.8m (2012: £1.7m), with average staff numbers down 22%.  

In Germany and Austria sales and net fee income reduced due to the branch restructuring programme, with a further eight branches being closed or merged in 2013. The cost reductions improved the profit performance resulting in operating profits across Continental Europe increasing 6%. The business is now focussed on its core Bavaria region in Germany and key industrial areas of Austria.  Profit continued to improve in the outsourced business, with a focus in the year on getting new projects to profitability within the first three months and on overall cost control.

For the total business there was a further reduction in staff numbers, with average numbers and year end numbers both down 23% on 2012. These cost savings, with further reductions in car costs and other overheads, saved €2.6m over the prior year.

There has been a release of £0.3m of the provision held against claims for retrospective pay and social security contributions in Germany. The provision at year end is £0.7m, which is for the social security payments and related interest and legal fees. There were no new claims from workers during the year and they are now time barred. All claims that were made have been settled for an average 14% of the original claim value. The final outstanding issue relates to an audit of the 2010 social security position, but we are confident that the provision level in place is sufficient to cover this matter.

The healthcare business in Finland and Estonia has been in transition, resulting in a significant reduction in sales and small loss in the year. The core sales and marketing team has been replaced with more experienced staff which is already helping to improve brand awareness and client numbers. They have also broadened the candidate base away from just Estonia, with Spanish doctors relocating to Finland at the end of Q4 after an intensive language training course. This will continue in 2014 as the opportunities for healthcare workers in Spain remain challenging. There is also a focus on sourcing from within Finland, with the first starters in January 2014. Whilst the economic conditions in Finland are constrained, we expect the business to deliver much improved results in 2014 after the investments made in the year.

Regional review - Rest of the World

£'m	2013	2012	2011
Revenue	46.8	44.6	39.2
Net fee income	12.9	12.2	11.2
Adjusted operating profit	2.1	1.5	1.1
% of Group net fee income	30%	28%	24%
Average number of employees	509	435	426

Market conditions

The emerging markets are no longer expecting the same GDP growth rates that they enjoyed in recent years. Whilst growth remains strong by Western Europe standards, the last quarter of 2013 highlighted some underlying weaknesses in a number of the economies.

In India and Indonesia there have been significant movements in exchange rates in 2013 and we expect them to remain volatile in 2014. Both countries have national elections coming up in 2014 and are suffering from the effects of economic slowdowns, current account deficits and a squeeze on foreign currency flows on the back of tapering from the US Federal Reserve.

In Japan the economy has responded well to "Abenomics", a combination of a bold monetary policy, flexible fiscal policy and policies to promote private investment. The impact of the rise in consumption tax in April 2014 from 5% to 8% should be countered by an injection of Government spending of JPY 5trn. The economy now needs wages to rise to drive domestic consumption and help sustain the economic recovery, given that nominal wages have fallen by an average of 0.8% per year since 2000.

In Chile economic growth has reduced to 4.5% for 2013 and 2014, down from an average 5.7% in 2010-12 (source HSBC) but it remains healthy thanks to its mining and agriculture sectors. A new Government was elected in December with the left wing Michelle Bachelet re-elected with an agenda of radical reforms and expected tax increases.

In China there is an ongoing rebalance of the economy, from being driven by exports to focus on domestic demand, which should lead to a sustainable GDP growth rate of between 7-8%. Because of the size of its economy, any changes impact on its trading partners, being most of the world.

In general the exchange rates across the Rest of the World region have weakened against Sterling in the second half of 2013.

Assuming constant profit figures in 2014 and using exchange rates as at the end of 2013 (against the average rates used for 2013) the reduction in Adjusted profit before tax would be £0.3m.

Performance in 2013

Revenue was up 5% to £46.8m (2012: £44.6m) with permanent revenue up 12% and temporary revenue up 3%. However the permanent margin only grew 5% as the costs for the training business, which is included in permanent sales for reporting, were higher than the prior year. The temporary margin was up 0.2% on 2012, helped by good results in Japan, our largest temporary market in this region. Costs were flat, so helping adjusted operating profit to increase 40% to £2.1m (2012: £1.5m) with profit contributions from our investments in Singapore and Chile turning around a loss in 2012 to a profit in 2013.

In Japan both brands grew profits, with our IT, digital & design brand growing temporary worker numbers by 22% to offset lower permanent sales. The Retail brand invested in a new team of six recruiters for permanent sales, so growing these sales more than threefold. This helped offset the lower temporary margin as the costs of attracting candidates increased.

In South East Asia the profit from the businesses in Singapore helped offset the increased costs from the training business in Indonesia, where there was a change in mix towards lower margin services. In general the Indonesian markets were more difficult in the second half of the year due to worsening economic conditions and currency impacts. There was also a catch up cost on retirement benefits for the training business. External factors negatively impacted the region, with political unrest in Bangkok at the end of the year and natural disasters in the Philippines.

India had a good year with sales growth in the Offshore Recruitment Services business of 20%, predominantly driven by the USA and UK markets. There was also the benefit of a foreign exchange gain as customers are billed in their local currency.

In China the first half was negatively impacted by the Government rebalancing the economy but we saw a much improved second half performance. Overall profit was down in the year.

In Australia the creative sector held up well, with sales and net fee income growing in local currency, although marginally down in Sterling. Investments were made in the back office structure and this reduced profit against prior year.

In Chile the restructuring in 2012 was successful and helped deliver a turnaround to profit after exiting all higher risk outsourcing business. Overall revenue grew by 8% plus there was a 0.5% increase in the gross margin. Costs were down on prior year so helping to deliver a much improved result.

Finance review

Revenue and net fee income

Revenue for the year was £194.4m (2012: £194.3m), with net fee income decreasing by 3% to £42.6m (2012: £43.9m). Gross margin was 21.9% (2012: 22.6%) with an increase in permanent revenue offset by a lower temporary margin. Permanent sales (including training and Offshore Recruitment Services) grew by 6% and accounted for 36% of net fee income (2012: 35%). Temporary revenue (including outsourced services) was down 0.5% on 2012, with the margin also reducing to 15.3% (2012: 16.2%).

The proportion of net fee income from non-UK operations reduced slightly to 63% (2012: 64%). On a constant currency basis, net fee income would have been 2% below 2012.

Trading summary

	2013	2012	% change	% change like-for-like currency**
Revenue	194.4	194.3	-	-
Net fee income	42.6	43.9	(3%)	(2%)
Administrative costs	(36.6)	(38.5)	(5%)	(5%)
Operating profit	5.5	4.4	25%	34%
Adjusted operating profit*	6.0	5.4	11%	15%
Net finance income and costs	(0.6)	(0.8)	(25%)	(25%)
Profit before tax	4.9	3.6	36%	49%
Adjusted profit before tax*	5.4	4.6	17%	23%

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

** The like-for-like currency movement is calculated by translating the 2012 results at the 2013 exchange rates.

Operating profit

Operating profit was £5.5m, up 25% on 2012. On an adjusted basis, it was up 11% at £6.0m. The conversion ratio of 14.2% was an improvement on 12.0% in 2012. This was due to a reduction in administrative costs, which at £36.6m were down 5% on 2012, with about half of the saving coming from staff costs. In the UK, costs were flat with the prior year, in Continental Europe were 11% down year-on-year, but were 5% higher in the Rest of the World.

Finance income and costs

Finance income was £0.1m (2012: £0.1m), all being bank interest income. Finance costs were £0.7m (2012: £0.9m), which all related to interest payable on invoice discounting, bank loans and overdrafts.

Exceptional charges

International Financial Reporting Standards (IFRS) require that items of income and expenditure that are material in terms of their nature or amount should be disclosed separately. Such items have been disclosed as exceptional charges in these accounts. The total net charge is £0.3m (2012: £0.7m). In Germany there is a charge of £0.6m for restructuring costs which relate to the closure or merger of branch offices and the termination of staff. This is partially offset by the release of £0.3m of the provision for potential claims for retrospective pay and social security in Germany.

Finally there is a profit on disposal of the Bar 2 payroll services business of £0.5m, offset by an impairment loss of £0.5m.

Taxation

The total tax charge in the year is £2.1m (2012: £1.7m) representing an effective tax rate of 43% (2012: 47%). Against the adjusted profit before tax and after excluding the tax on the exceptional items the effective tax rate reduces to 39% (2012: 39%). This remains high because of a combination of prior year tax charges, no tax benefit on certain losses and non-deductible costs in the year. The profits earned by the Group are subject to different tax rates in the countries in which the Group operates with the majority of profits being taxed at higher rates than in the UK.

Earnings per share

Basic earnings per share in the year ended 31 December 2013 was 5.2p (2012: 3.0p).

The Group achieved adjusted earnings per share of 6.2p (2012: 5.0p). This measure excludes exceptional items, intangible amortisation, gain or loss on business disposal and fair value movements on put and call options, so provides a better understanding of the underlying trading performance.

No shares were issued during the year. In total there are 2.2m LTIP share options outstanding at year end.

Dividend

During the year, the Group paid a dividend of £0.2m in respect of the year ended 31 December 2012, amounting to 0.35p per share. For the year ended 31 December 2013, the Board is proposing to maintain a dividend of 0.35p per share, which if approved by shareholders at the Annual General Meeting, will be paid on 23 June 2014 to shareholders on the register on 23 May 2014.

Treasury

The Group's treasury function is centrally managed with responsibility for ensuring compliance with treasury policy and managing the daily treasury operations resting with the Group Finance Director. The treasury philosophy of the Group is that speculative transactions are not permitted and where possible debt should match the location and currency of the related assets. There are certain matters reserved for Board approval, including the following:

-      Changes to the Group's capital structure;

-      Approval of Group financing arrangements or significant changes to existing arrangements;

-      Approval of treasury policies and any activity involving forward contracts, derivatives, hedging activity and significant foreign currency exposures; and

-      Approving the appointment of any of the Group's principal bankers.

Treasury is managed to deal with the following risk areas.

Liquidity & Funding risk

The objectives are:

-      to ensure that at all times the Group has access to sufficient cash resources as part of committed bank facilities to meet its financial obligations as they fall due, including taxes and dividends and to provide funds for capital expenditure and investment opportunities as they arise.

-      bank facilities must have a maturity profile that matches the funding requirement of the Group.

-      the Group must have sufficient liquidity to meet non-discretionary financial obligations in the event of unexpected business disruption.

-      to ensure compliance with borrowing facility covenants and undertakings.

-      to ensure the capital structure of the Group is appropriate for the Group's profile.

The Group maintains a range of appropriate facilities to manage its working capital and medium-term financing requirements. At the year-end the Group had banking facilities totalling £30.2m (2012: £29.0m).

Bank facilities at 31 December	2013		2012
	£m		£m
Overdrafts (UK)	2.8		2.8
Revolving credit facility (UK)	8.3		10.0
Term loan (UK)	1.4		2.0
Overdrafts and other loans (non-UK)	4.7		3.2
Invoice financing facility (UK)	13.0		11.0
	30.2		29.0
Amount of facility undrawn at year-end	7.1		4.8

The amount of facility undrawn of £7.1m (2012: £4.8m) excludes the headroom on the invoice financing facility. The invoice financing facility is available to the UK companies only.

The term loan of £1.4m (2012: £2.0m) expires in 2016.

The UK overdrafts are renewable annually and were last renewed in January 2014. The first facility is phased over the calendar year to match our funding requirements, with £4.0m from January to the end of June, £3.0m to the end of September and then £2.0m until the end of November, increasing back to £4.0m in December. The second facility is for Euro 1.0m (£0.8m) and is available for mid-month working capital funding in Germany.

The revolving credit facility, renewed in March 2011 for a five year term, is capped at Euro 10.0m (£8.3m) and is allocated for German working capital financing with any drawdown limited to 66% of the German trade receivables and cash. A second revolving credit facility of Euro 2.2m was repaid in full before 31 December 2013.

Group net debt decreased from £8.1m at 31 December 2012 to £5.8m at 31 December 2013, as detailed below:

	2013	2012
	£m	£m
Cash at bank and in hand	5.7	6.2
Overdraft facilities	(2.1)	(3.2)
Invoice financing (with recourse)	(1.3)	(1.1)
Bank loans	(8.1)	(10.0)
Reported net debt	(5.8)	(8.1)
Non-recourse invoice financing	(9.4)	(6.4)
Total net debt	(15.2)	(14.5)

The reported net debt excludes non-recourse invoice financing of £9.4m (2012: £6.4) which is offset against trade receivables. The total debt, including the non-recourse invoice financing, is £15.2m (2012: £14.5m).

The Group has to meet certain bank covenant tests on a quarterly basis. These tests were all met during the year. The figures at year end were:

Covenant	Target	Actual
Net debt:EBITDA	< 2.5 times	0.8
Interest cover	> 3.0 times	10.6
Debt service cover	> 1.25 times	3.4

Interest rate risk

The objectives are to:

-      Ensure compliance with interest cover covenants.

-      Manage the Group's net interest rate exposure to ensure the Group can meet its profit targets.

-      Manage the impact of adverse interest rate movements.

-      Any surplus cash invested can never put the capital amount at risk.

The Group's bank facilities are subject to floating interest rates. This is expected to match the interest costs with the economic cycle (eg when interest rates are higher there is typically better economic growth and so for a cyclical industry such as recruitment, profits should be greater when the economy is performing positively).

Within the UK Group the majority of bank accounts are included in a cash pooling arrangement. An interest optimisation model allows currency balances (including overdrafts) to be included within the cash pooling arrangement. With interest income not generally paid on current accounts, the Group aims to minimise the external interest cost paid to banks by repatriating surplus funds from around the Group to minimise the use of the overdraft facilities.

Finance costs were £0.7m (2012: £0.9m), which all related to interest payable on invoice discounting, bank loans and overdrafts. The effective interest rate for the year was 3.4% (2012: 3.8%).

Foreign exchange risk

The objectives are to:

-      Manage the adverse impact of exchange rate movements to ensure budgeted profit is achieved, protect the financial outcome of large transactions or capital expenditure and protect the cash flows of the business.

-      Minimise variances in the value of the Group's net foreign currency denominated assets by seeking to borrow in the same currency as the asset (natural hedges).

-      Manage the foreign exchange impact of long-term investments through net investment hedges.

The overall purpose of hedging is to mitigate risks and achieve a known outcome.

There was a foreign exchange gain in the year of £457,000 (2012: £17,000). This arose on trade debtor revaluations (£81,000) and inter-company loan revaluations (£376,000). Before year end the most significant inter-company loans have been restructured to reduce the impact of foreign exchange and the potential reversal of these gains to the profit & loss account.

The Group remains open to translation risk from reporting overseas results in Sterling. We do not actively hedge this exposure, with the diversity of operations across different countries providing an element of natural hedge. During the second half of 2013 we witnessed significant movements in exchange rates in the emerging markets, in particular the following exchange rates weakened against Sterling (based on the closing rate for 2013 against the closing rate for 2012):

Currency	Decline in value versus Sterling in the year
Japanese Yen	25%
Indonesian Rupiah	30%
Australian Dollar	19%
Indian Rupee	15%
Chilean Peso	12%

We do not expect these rates to strengthen in 2014 back to previous levels seen in 2012, so this will negatively impact on the profit reported from the Rest of the World region for 2014.

Credit risk

The objective is to ensure treasury transactions are undertaken with creditworthy counterparties and in accordance with approved limits.

The main credit risks arise through the use of different banks across the Group and on the Group's trade receivables. The credit ratings of the banks used within the Group are monitored with a target that no more than 10% of Group cash is held in banks with a rating below BBB (Fitch rating) or equivalent.

Debtor days are reviewed monthly with high balances followed up with local management. Average debtor days for the Group in 2013 were 50 (2012: 51), although at the end of the year the debtor days were 54 (2012: 51 days).

Cashflow

Reported net debt decreased by £2.3m in the year to £5.8m (2012: £8.1m).

	2013	2012
	£m	£m
Cash generated from operations	7.8	5.2
Tax and interest payments	(2.4)	(2.5)
Cash received on disposals	0.2	0.2
Capital expenditure	(0.8)	(0.5)
Purchase of shares in subsidiaries	(1.3)	(3.2)
Dividends to Group shareholders	(0.2)	(0.2)
Dividends to subsidiary shareholders	(0.2)	(0.4)
Net movements on loans	(0.8)	(1.1)
Decrease/(increase) in net debt	2.3	(2.5)

Acquisitions and disposals

During the year, the Group made a number of acquisitions of shares in subsidiaries held by minority shareholders and disposed of a business, as summarised below:

-      In January 2013, 10% of the shares in Skill House Staffing Solutions KK, a Japanese company specialising in placing IT professionals, for cash consideration of £0.45m taking the Group ownership to 100% (this has subsequently reduced back to 90% with a senior manager acquiring 10% second generation shares).

-      In July 2013, 9% of the shares in the MediradiX companies (Finland & Estonia), which specialise in the placement of doctors, dentists and nurses in Finland, for cash consideration of €0.3m, of which EUR50,000 was deferred for a year The Group now holds 95.7% of the shares of both these companies.

-      In August 2013 the Group disposed of the business and trading assets carried on by Bar 2 Limited, which provided umbrella payroll services in the UK, for up-front consideration of £100,000 and contingent consideration of £660,000.

The Group received £0.2m in deferred consideration from the disposal made in 2011 of the supply chain business in the UK and the disposal of the Bar 2 business detailed above.

Balance sheet

The Group's net assets as at 31 December 2013 were £24.7m (2012: £24.0m). A summarised balance sheet is provided below:

	2013		2012		Movement
	£m		£m		£m
Goodwill & intangibles	26.0		26.6		(0.6)
Property, plant & equipment	1.0		1.3		(0.3)
Deferred tax assets	0.6		1.2		(0.6)
Trade and other receivables	27.2		27.4		(0.2)
Net borrowings	(5.8)		(8.1)		2.3
Trade payables and other current liabilities	(23.1)		(23.5)		0.4
Deferred tax liability	(1.2)		(0.9)		(0.3)
Net assets	24.7		24.0		0.7
Share capital and premium	21.6		21.6		-
Equity reserve	(6.7)		(6.1)		(0.6)
Other reserves & retained earnings	6.7		5.1		1.6
Equity attributable to the owners of the company	21.6		20.6		1.0
Minority interests	3.1		3.4		(0.3)
Total equity	24.7		24.0		0.7

Post balance sheet events

On 10 March 2014 the Group acquired 51% of the shares in BW&P FZ LLC, a Dubai based company specialising in permanent sales in the Technical & Industrial sector. Initial consideration is £300,000 with two further payments that are contingent on the performance of the company in the two years ended 31 December 2015.

Going concern

The Board has undertaken a recent and thorough review of the Group's budget, forecasts and associated risks and sensitivities. Despite the uncertainty in the economy and its inherent risk and impact on the business, the Board has concluded, given the level of borrowings and bank facilities, that the Group is expected to be able to continue in operational existence for the foreseeable future, being a period of at least twelve months from the date of approval of the accounts. As a result, the going concern basis continues to be appropriate in preparing the financial statements.

Consolidated income statement 

		2013	2012
	Note	£m	£m
Continuing operations
Revenue	2	194.4	194.3
Cost of sales		(151.8)	(150.4)
Net fee income	2	42.6	43.9
Administrative costs		(36.6)	(38.5)
Operating profit before exceptional items and intangible amortisation		6.0	5.4
Exceptional items	3	(0.3)	(0.7)
Gain on business disposal	4	-	-
Intangible amortisation		(0.2)	(0.3)
Operating profit	2	5.5	4.4
Finance income	5	0.1	0.1
Finance costs	5	(0.7)	(0.9)
Profit before tax		4.9	3.6
Income tax	6	(2.1)	(1.7)
Profit for the year		2.8	1.9
Attributable to:
Equity holders of the parent		2.4	1.4
Non-controlling interest		0.4	0.5
		2.8	1.9
Earnings per share :
From continuing operations
Basic and diluted (pence)	8	5.2	3.0
Adjusted (pence)	8	6.2	5.0

Consolidated statement of comprehensive income

		2013	2012
		£m	£m
Items that may be reclassified subsequently to profit/(loss):
Exchange differences on translation of foreign operations		(1.2)	(1.0)
Net expense recognised directly in equity		(1.2)	(1.0)
Profit for the year		2.8	1.9
Total comprehensive income for the year		1.6	0.9
Attributable to:
Equity holders of the parent		1.7	0.4
Non-controlling interest		(0.1)	0.5
		1.6	0.9

Consolidated balance sheet

		2013	2012
	Note	£m	£m
ASSETS
Non-current assets
Property, plant and equipment		1.0	1.3
Goodwill	9	24.3	24.8
Other intangible assets		1.7	1.8
Deferred tax assets		0.6	1.2
		27.6	29.1
Current assets
Trade and other receivables		27.2	27.4
Cash and cash equivalents		5.7	6.2
		32.9	33.6
Total assets		60.5	62.7
LIABILITIES
Current liabilities
Trade and other payables		21.4	21.8
Current tax liabilities		1.7	1.7
Borrowings	10	4.2	6.4
		27.3	29.9
Non-current liabilities
Borrowings	10	7.3	7.9
Deferred tax liabilities		1.2	0.9
Total non-current liabilities		8.5	8.8
Total liabilities		35.8	38.7
Net assets		24.7	24.0
EQUITY
Share capital		2.2	2.2
Share premium account		19.4	19.4
Merger reserve		0.9	1.5
Retranslation reserve		2.6	3.3
Equity reserve		(6.7)	(6.1)
Other reserves		(1.2)	(1.3)
Retained earnings		4.4	1.6
Equity attributable to owners of the Company		21.6	20.6
Non-controlling interest		3.1	3.4
Total equity		24.7	24.0

Consolidated statement of changes in equity

	Share capital	Share premium account	Merger reserve	Retranslation reserve	Option reserve	Equity reserve	Other reserves	Retained earnings Restated	Non-controlling interest	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m	£m		£m
Balance at 31 December 2011	2.2	19.4	1.5	4.0	0.8	(2.4)	(1.1)	(0.3)	3.5		27.6
Profit for the year	-	-	-	-	-	-	-	1.4	0.5		1.9
Dividend	-	-	-	-	-	-	-	(0.2)	-		(0.2)
Currency translation differences	-	-	-	(0.7)	-	-	(0.3)	-	-		(1.0)
Share based payment	-	-	-	-	-	-	0.1	-	-		0.1
Non-controlling interest acquired during the year	-	-	-	-	-	(3.7)	-	-	(0.2)		(3.9)
Movement in put options	-	-	-	-	(0.8)	-	-	0.7	-		(0.1)
Dividend paid to non-controlling interest	-	-	-	-	-	-	-	-	(0.4)		(0.4)
Balance at 31 December 2012	2.2	19.4	1.5	3.3	-	(6.1)	(1.3)	1.6	3.4		24.0
Profit for the year	-	-	-	-	-	-	-	2.4	0.4		2.8
Dividend	-	-	-	-	-	-	-	(0.2)	-		(0.2)
Currency translation differences	-	-	-	(0.7)	-	-	-	-	(0.5)		(1.2)
Non-controlling interest acquired during the year	-	-	-	-	-	(0.6)	-	-	(0.1)		(0.7)
Disposal of business	-	-	-	-	-	-	-	-	0.1		0.1
Share based payment	-	-	-	-	-	-	0.1	-	-		0.1
Dividend paid to non-controlling interest	-	-	-	-	-	-	-	-	(0.2)		(0.2)
Transfer of Merger relief	-	-	(0.6)	-	-	-	-	0.6	-		-
Balance at 31 December 2013	2.2	19.4	0.9	2.6	-	(6.7)	(1.2)	4.4	3.1		24.7

Equity comprises the following:

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

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

·     "Merger reserve" relates to premiums arising on shares issued subject to the provisions of section 612 "Merger relief" of the Companies Act 2006.

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

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

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

·     "Other reserves" mainly represents exchange differences on intercompany long-term receivables which are treated as a net investment in foreign operations and the share based payment reserve of £0.2m.

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

Consolidated cash flow statement

	2013	2012
	£m	£m
Profit for the year	2.8	1.9
Adjustments for:
Depreciation	0.9	0.9
Intangible amortisation	0.2	0.3
Taxation expense recognised in income statement	2.1	1.7
Exceptional items	0.3	0.7
Cash paid for exceptional items	(1.0)	(1.0)
Share based payments	0.1	0.1
Net finance charge	0.6	0.8
	6.0	5.4
Increase/(decrease) in invoice discounting	3.3	(2.9)
(Increase)/decrease in trade receivables	(4.2)	6.0
Increase/(decrease) in trade payables	2.7	(3.3)
Cash generated from operations	7.8	5.2
Interest paid	(0.8)	(0.9)
Income taxes paid	(1.6)	(1.6)
Net cash from operating activities	5.4	2.7
Cash flows from investing activities
Business disposals	0.2	0.2
Purchase of property, plant and equipment and intangibles	(0.8)	(0.5)
Finance income	0.1	0.1
Net cash used in investing activities	(0.5)	(0.2)
Cash flows from financing activities
Further shares acquired in existing subsidiaries	(1.3)	(3.2)
(Decrease)/increase in borrowings	(1.1)	1.9
Proceeds from bank loan	-	1.5
Repayment of bank and other loan	(2.2)	(1.6)
Dividends paid to shareholders	(0.2)	(0.2)
Dividends paid to non-controlling interest in subsidiaries	(0.2)	(0.4)
Net cash from financing activities	(5.0)	(2.0)
Net (decrease)/increase in cash and cash equivalents	(0.1)	0.5
Effect of foreign exchange rate changes and disposal	(0.4)	(0.3)
Cash and cash equivalents at beginning of the year	6.2	6.0
Cash and cash equivalents at end of the year	5.7	6.2

1    Basis of preparation and general information

The financial information has been abridged from the audited financial information for the year ended 31 December 2013.

The financial information set out abovedoes not constitute the Company's statutory accounts for the years ended 31 December 2013 or 2012, but is derived from those accounts. Statutory accounts for 2012 have beendelivered to the Registrar of Companies and those for 2013 will be delivered following the Company's Annual General Meeting. The Auditors have reported on those accounts; their reportswere unqualified, did notdraw attention to any matters by way of emphasis without qualifying their reports and did not contain statements under s498(2) or (3) Companies Act 2006 or equivalent preceding legislation.

Accounting policies have been consistently applied throughout 2012 and 2013.

Whilst the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards ('IFRS'), this announcement does not itself contain sufficient financial information to comply with IFRS. The Group will be publishing full financial statements that comply with IFRS in April 2014.

2    Segment analysis

Information reported to the Group's Chief Executive for the purpose of resource allocation and assessment of segment performance is based on geographic region. The Group's business is segmented into three regions, UK, Continental Europe and Rest of the World.

The Group has one principal activity, the provision of staffing and recruitment services. Each unit is managed separately with local management responsible for determining local strategy.

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

Year ended 31 December 2013	UK	Continental Europe	Rest of the World	Total
	£m	£m	£m	£m
Revenue	70.7	76.9	46.8	194.4
Gross profit	15.8	13.9	12.9	42.6
Adjusted operating profit*	2.1	1.8	2.1	6.0
Operating profit	2.1	1.3	2.1	5.5

* Adjusted operating profit represents operating profit before exceptional items, gain or loss on business disposal and intangible amortisation.

Year ended 31 December 2012	UK	Continental Europe	Rest of the World	Total
	£m	£m	£m	£m
Revenue	66.5	83.2	44.6	194.3
Gross profit	16.0	15.7	12.2	43.9
Adjusted operating profit*	2.2	1.7	1.5	5.4
Operating profit	2.2	0.8	1.4	4.4

3    Exceptional items

Exceptional items are those which, in management's judgement, need to be disclosed separately by virtue of their size or incidence in order for the reader to obtain a proper understanding of the financial information.

	2013	2012
	£m	£m
Continental Europe
Release against potential retrospective pay claims and social security liability in Germany	0.3	0.4
Germany restructuring charges	(1.6)	(1.1)
	(0.3)	(0.7)

In Germany the provision for potential claims from temporary workers and social security has reduced from £1.0m to £0.7m with a release of £0.3m.

In Germany restructuring costs of £0.6m have been incurred following the closure and merger of eight branch offices.

	2013	2012
	£m	£m
Losses in respect of office cost and assets	0.1	0.5
Staff termination costs	0.5	0.6
	0.6	1.1

4    Gain on business disposal

	2013	2012
	£m	£m
Gain on disposal of business	0.5	-
Impairment of goodwill on disposal of business	(0.5)	-
	-	-

In August 2013 the business of Bar 2 Limited was disposed of. A net nil position arose on disposal, being consideration of £760,000 less net assets disposed of giving a gain of £0.5m less the impairment of attributable goodwill of £0.5m. The consideration includes contingent amounts of £660,000 of which £29,000 was received by 31 December 2013.

5    Finance income and cost

	2013	2012
	£m	£m
Finance income
Bank interest receivable	0.1	0.1
	0.1	0.1
Finance cost
On amounts payable to invoice discounters	(0.2)	(0.2)
Bank loans and overdrafts	(0.5)	(0.7)
	(0.7)	(0.9)
Net finance cost	(0.6)	(0.8)

6    Taxation

	2013	2012
	£m	£m
Current taxation
Current tax	(1.5)	(1.1)
Adjustment to tax charge in respect of previous periods	(0.1)	(0.2)
Adjustment to tax charges in respect of exceptional items transferred from deferred tax	0.3	-
	(1.3)	(1.3)
Deferred tax - current year	(0.3)	(0.4)
Deferred tax - prior year	(0.2)	-
Deferred tax charge in respect of exceptional items transferred to current tax	(0.3)	-
Total income tax expense in the income statement	(2.1)	(1.7)

7    Reconciliation of Adjusted profit before tax to Profit before tax

	2013	2012
	£m	£m
Profit before tax	4.9	3.6
Amortisation of intangibles	0.2	0.3
Exceptional items	0.3	0.7
Adjusted profit before tax	5.4	4.6

8    Earnings per share

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

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

	2013	2012
	£m	£m
Earnings
Earnings attributable to equity holders of the parent	2.4	1.4
Adjustments :
Exceptional items	0.3	0.7
Gain on business disposal	-	-
Amortisation of intangible assets	0.2	0.3
Tax on exceptional items and intangible amortisation	-	(0.1)
Earnings for the purpose of adjusted earnings per share	2.9	2.3
Number of shares	Millions	Millions
Weighted average number of shares - basic	44.6	44.6
Weighted average number of shares - diluted	45.4	44.9
Earnings per share	Pence	Pence
Basic (diluted)	5.2	3.0
Adjusted earnings per share (diluted)	6.2	5.0

The dilution on the number of shares is from share options granted to the executive directors.

9    Goodwill

	2013	2012
	£m	£m
At 1 January	24.8	25.1
(Disposal)/addition	(0.5)	0.2
Foreign exchange	-	(0.5)
At 31 December	24.3	24.8

Goodwill has been tested for impairment by comparing the carrying amount of each cash-generating unit (CGU) at lowest level of cashflow, including goodwill, with the recoverable amount of that income-generating unit.

The recoverable amount of each cash-generating unit is determined based on the higher of value in use calculations and its fair value less costs to sell. The value in use calculations are based on cash flow projections derived from the Group budget for the year ended 31 December 2014 and growth forecasts extrapolated into perpetuity.  The growth forecast uses growth rates based on the average five year GDP growth forecast for the relevant country, which ranged from 1.1% to 8.5%. Any growth rate in excess of 3.0% was capped for the purpose of this calculation.  A discount rate of 12.5% (2012: 12.5%) has been applied in discounting the projected cash flows, being the estimated industry weighted average cost of capital.

As part of the impairment review, management has considered the sensitivity of the recoverable amount for each unit to changes in the growth rate and discount rate. This sensitivity analysis showed that the long-term growth rate could reduce to nil without giving rise to an impairment of goodwill. The discount rates were also increased in line with estimated country discount rates, ranging from 12.5% to 21.0%. No impairment was indicated. None of these changes in the key assumptions are reasonably expected to occur.

The carrying amount of goodwill has been allocated as follows:

	2013	2012
	£m	£m
Goodwill by region
UK	7.2	7.7
Continental Europe	13.8	13.5
Rest of the World	3.3	3.6
	24.3	24.8

10  Borrowings

	2013	2012
	£m	£m
Current
Bank overdrafts	2.1	3.2
Amounts related to invoice financing	1.4	1.1
Current portion of bank loans	0.7	2.1
	4.2	6.4
Non-current
Bank loans	7.3	7.9
	7.3	7.9
Total financial liabilities	11.5	14.3

The bank loans include a revolving credit facility and a term loan which both expire in 2016. The bank loans are secured by a first fixed charge over all book and other debts given by the Company and certain of its subsidiaries. Interest rates vary over the term of the loan. In 2013, interest was payable at 2.0% over UK base rate on the term loan and 2.0% over EURIBOR on the revolving credit facility.

The interest rate on the UK bank overdrafts was fixed during the year at rates up to 1.0% above applicable currency base rates. The value of the UK bank overdrafts at 31 December 2013 was £1.8m (2012: £1.2m). Other overseas overdrafts had interest rates of between 2.5% and 5.75% during the year.

The amounts above for invoice financing represent with-recourse facilities. The Group also has non-recourse invoice financing which is offset against trade receivables. The total amount of non-recourse invoice financing at 31 December was £9.4m (2012: £6.4m).

Movement in net borrowings	2013	2012
	£m	£m
As at 1 January	(8.1)	(5.6)
Net (decrease)/increase in cash and cash equivalents	(0.1)	0.5
Decrease/(increase) in loans	3.2	(1.7)
Increase in invoice financing	(0.3)	(1.1)
Currency translation differences	(0.5)	(0.2)
As at 31 December	(5.8)	(8.1)

Analysis of net borrowings	2013	2012
	£m	£m
Financial liabilities - borrowings	(11.5)	(14.3)
Cash and cash equivalents	5.7	6.2
As at 31 December	(5.8)	(8.1)

11  Dividends

	2013	2012
	£000	£000
Amount recognised as distribution to equity holders in the year:
Final dividend for the year ended 31 December 2012 of 0.35 pence (2011: 0.35 pence) per share	156	156
Proposed final dividend for the year ended 31 December 2013 is 0.35 pence (2012: 0.35 pence) per share	156	156

The proposed dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

12  Post balance sheet event

On 10 March 2014 the Group acquired 51% of the shares in BW&P FZ LLC, a Dubai based company specialising in permanent sales in the Technical & Industrial sector. Initial consideration is £300,000 with two further payments that are contingent on the performance of the company in the two years ended 31 December 2015.

 

END

 

 

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