Final Results

Empresaria Group PLC 25 April 2005 EMPRESARIA GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2004 HIGHLIGHTS â€¢ Turnover up 55% year on year â€¢ Adjusted profit before tax up 25% year on year â€¢ Successful move to AiM and raising Â£2.5m (gross) of funds â€¢ New business lines and organic growth in UK â€¢ Launch of international development programme â€¢ Announcement of start up investment in the US ENQUIRIES Empresaria Group plc Tel: 01293 649 900 Tony Martin, Chairman Miles Hunt, Chief Executive Nick Hall-Palmer, Finance Director CHAIRMAN'S REVIEW Empresaria Group plc ('Empresaria') has achieved good results in its first period as an AiM listed company. It has made progress in strengthening and expanding its UK businesses and made an encouraging start in the development of its international operations. This follows several years of continued growth and increased profitability. RESULTS Turnover: Turnover Â£45.4m (2003: Â£29.4m), an increase of 55%. Net fee income (Gross profit) Â£13.1m (2003: Â£10.6m), an increase of 24% Profitability: Excluding amortisation of goodwill and exceptional costs, profit before taxation was Â£1.39m (2003: Â£1.11m), an increase of 25% Earnings per share: Excluding amortisation of goodwill and exceptional costs EPS were 4.2 pence (2003: 3.9 pence), an increase of 8% Proposed dividend: The directors are recommending payment of a dividend of 0.4 pence per share (2003: 0.375 pence), an increase of 7% Cash flow: During the year the Group generated operating cash flow of Â£2m (2003: Â£2m) . Net debt at the year end was Â£1.6m (2003: Â£1.3m) CORPORATE DEVELOPMENT Empresaria has a dual focus on managing growth and managing business risk. The group has achieved sustained, consistent turnover and profit growth through the development of specialist staffing brands. It has done this by a combination of organic investment, start up and acquisition. Investment across a range of market sectors has reduced exposure to individual market volatility and enabled the group to channel resources where market conditions are most favourable. It has improved both earnings visibility and consistency by shifting the mix of the business from one of predominantly permanent staffing operations to one weighted more to contract/temporary recruitment. This shift in business mix fuels turnover growth at the expense of percentage gross margin. Underpinning this strategy has been the consistent application of the philosophy of management equity which helps to ensure that every member of the group company management teams is highly motivated. The move from OFEX to AiM in October 2004 and the raising of Â£2.5m has enabled Empresaria to extend this approach to international development. It is the company's intention to identify and enter selected international staffing markets with particularly high potential and where the management equity philosophy and the Empresaria structure will prove inspirational. This evolution to an international staffing business will also diversify risk away from the UK economic and regulatory environment. Empresaria's first investment overseas was in Japan in the second half of 2004. The Japanese staffing market is growing rapidly following the decision by the Japanese government to liberalise the industry and create more flexible working practices in order to stimulate economic growth. The new company, Skillhouse Staffing, operates within the IT staffing market. It commenced trading in December last year and already the financial performance is exceeding our expectations. We announce today the completion of our second international investment with the start up of a new company, Gerard Stewart Inc based in Atlanta Georgia. The new company will provide recruitment services to the US staffing industry, an extension of our successful existing operations within this market sector in the UK where we operate under the McCall and Gerard Stewart brands. Empresaria will seek out similar opportunities in international markets and move quickly to take advantage of them. PEOPLE These positive results have only been possible because of the hard work, dedication and motivation of all those working within the group. I would like to thank all of them for their efforts this year. SHAREHOLDERS We thank our shareholders for their confidence and support in the company and particularly those new investors who subscribed to our November 2004 equity issue. PROSPECTS The group has started 2005 well. We are seeing positive activity in all our markets with only financial services experiencing a slow start to the year in comparison with the strong first quarter of 2004 and our public sector businesses in particular are performing well. This gives confidence as to the outcome for the year. Your group is meanwhile pursuing a number of opportunities both within the UK and overseas that, if converted, will continue our path towards developing a broad based international specialist staffing group. Tony Martin Chairman CHIEF EXECUTIVE'S REVIEW GROWTH Since its inception Empresaria has been firmly committed to growth. Over the past three years turnover has increased by an average of 34% annually, adjusted profit before tax by 42% and EPS by 55% on the same basis. This has been achieved by a balanced combination of organic growth, investment in start-ups and acquisition, and the sustained development of each of these three strands remains the strategy for the future. ORGANIC GROWTH The year under review saw a substantial increase in investment in organic growth. This was partly driven by improved market conditions in general, but also by specific opportunities in certain sectors. A number of companies invested in branch network expansion as well as IT projects during the year. In particular, DriveLink, our contract HGV business, invested in new branches in the Midlands and North West as well as developing and successfully commissioning a new automated back office system. Our insurance recruitment businesses, Lime Street Recruitment and Mansion House Executive, opened up new offices in Birmingham, Manchester and Maidstone. We also invested in new branches within our social work and property sales recruitment operations. We expect to see benefits of these investments accruing in 2005 and 2006. The total revenue cost of this additional programme, combined with the investment in start up companies was approximately Â£500,000 in 2004. Adding this sum back to our adjusted PBT figure, organic PBT growth was 17% year on year and underlying organic EPS grew by 6%. START UPS We invested in two start ups in 2004. The first of these, established in September, was Second City Resourcing, providing contract and permanent marketing and PR professionals. The company is performing in line with expectations but is not expected to contribute to earnings in 2005. The second investment was in Skillhouse Staffing, a Tokyo based contract IT company, an opportunity introduced to us by Tony Martin. The investment was made in September but, owing to the length of the registration process in Japan, commenced trading in December. The investment in Skillhouse Staffing was made through an investment vehicle with shared ownership and funding commitments shared equally between Tony and Empresaria. It was always the intention for Empresaria to acquire the shares held by Tony once the business was up and running. Early indications are positive and we anticipate seeking shareholder approval to buy Tony's share in the business as soon as summer 2005. We announce today the formation of a new company, Gerard Stewart Inc, based in Atlanta, Georgia. The Gerard Stewart brand is used by McCall, our UK based ' recruitment to recruitment' business for the provision of retained search and senior recruitment management services. The new company will provide similar services to the US staffing industry. We expect to benefit from the access to US market knowledge and staffing contacts that this investment provides and with these the potential to gain access to further US investment opportunities. ACQUISITIONS The group made three acquisitions in 2004. The first two of these were bought at the same time in early 2004, FastTrack Management Services, a provider of contract trades to the construction and property services sector and also Bar 2, a provider of payroll and administration services to contract staff operating under composite company arrangements. The performance of both companies exceeded expectations in the year. This was due partly to cost savings, partly to increased geographical coverage and, most encouragingly, to cross selling and sharing of key customers with other companies within the Group. This is a trend which is being fostered at all levels of management. The third acquisition, made in July 2004 was that of Reflex HR a specialist contract and permanent staffing business in the building management services sector. Reflex performed in line with expectations. We have made one acquisition since the year end, acquiring a total of 65% of The Recruitment Business ('TRB') in February 2005. TRB comprises three separately branded divisions, MacPeople, WebPeople and CreativePeople, each supplying creative and design related staff on both a permanent and contract basis to a range of markets including the media, public and financial services sectors. This acquisition is expected to make a substantial contribution to profits in the current year. DISPOSALS AND RESTRUCTURING We view the Empresaria group of companies as a portfolio to be managed for maximum growth and long term returns. The performance and perceived potential of group companies are under constant review. Where appropriate we will consider selling, restructuring or closing businesses that are possibly under-performing or deemed best-suited outside rather than inside the group. In 2004 we re-branded our existing TMR businesses 'FastTrack' following the acquisition of FastTrack Management Services. In April we sold off the under-performing permanent recruitment operations of the TMR business based in Maidstone and, in October, relocated the more successful TMR contract recruitment operations to the FastTrack head office in Watford. In January 2005 we completed the sale of the MC(2) Management Consulting business to the management team for total consideration of Â£491,000. MC(2) is a permanent recruitment business servicing the property and construction sectors. A combination of low growth and earnings volatility precipitated the opening of negotiations with the management team. As part of the sale negotiations with management it was agreed not to pursue a number of disputed invoices, which we believed to be recoverable, and which would have been pursued if the company had remained part of the Group. The impact of this decision was the incurring of an exceptional loss of Â£135,000 and which is shown as an exceptional operating cost from discontinued operations in the Group accounts. Payment of Â£287,000 of the total consideration is deferred until 2006 and 2007. SECTOR OVERVIEW FINANCIAL SERVICES Turnover in 2004 was Â£3.7m (2003: Â£3.1m), up 19%. We benefited in 2004 from the upturn in the banking sector and a return to growth after two years of decline. The banking recruitment market remains positive although we do not anticipate recent growth rates to continue into 2005. The insurance market has been characterised by consolidation within the client base and increasing trends towards centralisation and outsourcing of HR functions, including recruitment. In the short term we see this trend impacting on growth rates and possibly gross margin but see long term benefit from the increased barriers to entry that these trends create for new entrants to this market. SUPPLY CHAIN Turnover in 2004 was Â£6.9m (2003: Â£7.4m), a drop of 6%. 2004 was a year of substantial structural change and development for our DriveLink driving recruitment businesses. New branches were established in the Midlands and North and substantial investment was made in centralised administration systems. As reported in September 2004, the driving market was subdued in the second and third quarters of the year with demand lower than previous years. This slowdown, combined with flat performances from a number of established South-East branches, held the sector back in growth terms in the year. The final quarter of 2004 showed a return to normal anticipated seasonal demand and we expect an improved performance in 2005. CONSTRUCTION, PROPERTY SERVICES AND ENGINEERING Turnover in 2004 was Â£25m (2003: Â£10.4m), a rise of 140%. Year on year growth was driven largely through the acquisition of FastTrack and Reflex supplemented by strong underlying growth at our existing shop fitting and interiors recruitment business (FastTrack Midlands) and steady progress at TeamSales. The broader construction and property services markets remain strong. PUBLIC SECTOR Turnover in 2004 was Â£6.7m (2003: Â£5.1m), a rise of 31%. We saw strong growth from both our allied healthcare staffing business, Healthcare First ('HCF'), and also in contract social work through Social Work Associates ('SWA'). Both companies increased staff numbers and turnover in their core operations, with SWA also expanding into the Midlands with an office in Leicester and HCF developing its specialist nursing operations from its new office in Wolverhampton. Both the healthcare and social care markets continue to experience significant changes. To date we have benefited from operating flexible, low cost operations within specialist markets that have seen limited impact from changing government procurement practices. SPECIALIST BRANDS In 2004 turnover was Â£3.1m (2003: Â£2.9m after deducting 2003 contribution from discontinued operations), a rise of 7%. Greycoat Placements (domestic recruitment) continues to strengthen its position as the leading brand in its sector and is looking at potential branch expansion. Empresaria will continue to build a high quality portfolio of specialist brands in this very fragmented industry. Miles W R Hunt Chief Executive Financial Performancetc 'Financial review' Turnover Group turnover rose by 55% in the year. Gross margin The Group achieved a 29% gross margin in the year, compared with 36% in 2003. The reduction in gross margin reflects our stated aim of growing mainly through temporary and contract revenue. In 2004, 51% of the Group's gross margin was generated by the temporary and contract businesses, compared with 45% in 2003. As the contribution to gross margin from the temporary and contracts businesses increases, the overall gross margin percentage will reduce further in the coming years. Profitability The Group uses adjusted profit before taxation (PBT) as its principal measure of operating performance. Profits before tax are adjusted to remove the effects of goodwill amortisation and any exceptional costs or gains incurred during the year. A reconciliation of the statutory and adjusted profit is provided in the additional information. Adjusted PBT for the year rose by 25% to Â£1.39m (2003: Â£1.11m) for the whole Group. Adjusted PBT from continuing operations rose by 18% to Â£1.47m (2003: Â£1.25m). Exceptional costs Exceptional costs of Â£303,000 were incurred in the year, of which Â£168,000 related to costs in operations discontinued at the year end, principally in MC2 Management Consulting Ltd, the business of which was sold to its management team shortly after the year end. A further Â£60,000 related to legal costs at MVP and Â£41,000 was incurred in moving to AiM, with the majority of the balance being due to the integration of FastTrack Management Services South East Limited into FastTrack Management Services London Limited. Taxation The effective rate of corporation tax to headline profit before tax has increased from 36% in 2003 to 47% in 2004. The increase is due to a combination of the rise in goodwill amortisation arising on consolidation and tax losses arising in various companies including the MC(2) business, on which no corporation tax relief could be obtained. These losses remain unrelieved due to the group's share ownership structure, which leaves several companies outside the tax group. The effective rate of tax to adjusted profit before tax was 31% (2003: 29%). Deferred taxation has been provided on timing differences where required by FRS 19. Minority interests The Group's share of profit after tax fell from 63% in 2003 to 57% in 2004, reflecting higher goodwill amortisation charges. Earnings per share After reflecting the share consolidation undertaken in the year (see below), Earnings per share, adjusted for the effects of goodwill amortisation and exceptional costs, were 4.2 pence, an increase of 8% over 2003 (3.9 pence, adjusted to reflect the share consolidation). The Group's weighted average issued share capital, as used to calculate EPS, increased by 9% during the year, mainly due to the issue of shares when the Group listed on AiM. The purpose of the fund-raising was to make earnings enhancing investments, the benefits of which will be felt from 2005. Had the share capital not been increased, adjusted EPS would have been 4.5 pence, an increase of 15% over the previous year Dividends The Directors have recommended the payment of a dividend of 0.4 pence per share, an increase of 7% over 2003 (0.375 pence, adjusted to reflect the share consolidation). Move to AiM Raising of funds In November 2004 the Group listed its shares on the Alternative Investment Market ('AiM'). As part of the process, Â£2.5 million before costs was raised from the issue of new shares. These funds are being used to fund organic growth and acquisitions in line with the Group's growth strategy. Share Consolidation In conjunction with the move to AiM, a share consolidation took place, whereby one new ordinary share with a nominal value of 5 pence was issued for every two and a half old shares with a nominal value of 2 pence. The earnings per share figures quoted above have been adjusted to reflect the effects of this consolidation. Acquisitions and disposals Acquisitions During the year the Group acquired three businesses and significantly increased its shareholding in an existing subsidiary, as detailed below: Purchase of FastTrack Management Services London Limited ('FastTrack') On 6 February 2004, the Group completed the acquisition of a 66% shareholding in FastTrack Management Services Limited for an initial consideration of Â£1,100,000 (Â£1m cash and Â£100,000 shares in Empresaria), deferred cash consideration of Â£150,000 with potential further consideration of up to Â£730,000 being payable dependent on financial performance in 2004 and 2005. The maximum cash element of the remaining deferred consideration is Â£100,000, with the balance being payable in Empresaria shares. FastTrack is a provider of contract recruitment services to the construction industry with offices in Watford and Blackburn. Purchase of Bar 2 Limited On 9 February 2004, the Group completed the acquisition of a 66% shareholding in Bar 2 Limited, a provider of payroll administration services based in Chesham for a nominal consideration. Purchase of Reflex HR On 2 August 2004, Empresaria acquired Reflex HR ('Reflex'), a recruitment business focusing on the supply of contract and permanent staff to the Building Services sector. The acquisition was made through a newly established company (Reflex HR Limited) which paid Â£732,000 in cash for certain assets and the goodwill of Reflex. Up to a further Â£168,000 of deferred consideration may be payable in shares depending on the financial performance of Reflex HR limited over the 12 months to 31 July 2005. Empresaria holds 90% of Reflex HR Limited, with management holding the balance. Purchase of DriveLink (South East) Limited minority holding On 17 September 2004, Empresaria acquired the outstanding 32.63% of the issued share capital of DriveLink (South East) Limited, for a maximum aggregate consideration of Â£293,000. The initial consideration of Â£146,500 was satisfied by the issue of shares in Empresaria. Deferred consideration of Â£146,500 in Empresaria shares is to be paid subject to the achievement by DriveLink of a profit target. Post year end purchase Following the end of the year, the Group acquired a 65% interest in The Recruitment Business Limited ('TRB'), a company specialising in the placement of temporary and permanent staff for roles including graphic and web designers, copywriters, typographers, art workers, Mac operators, studio managers and print buyers. The initial consideration was Â£1.3 million, which has been satisfied by Â£950,000 in cash and the balance in shares in Empresaria. The initial consideration includes a payment, on a pound for pound basis, of Â£300,000 for the net cash currently within the business. Deferred consideration of up to Â£725,000 may be payable based on the operating profit and cash position of TRB in the two year period to 31 December 2006. Post year end disposals In January 2005, the Group made one disposal, in selling the trading assets and goodwill of MC(2) Management Consulting Limited to the management team, who purchased the business through a newly established company. As the Group was irrevocably committed to the disposal at 31 December 2004 MC(2) has been treated as a discontinued operation. Intangible assets The carrying value of intangible assets and investments in associates in the Group Balance Sheet increased by Â£2m, from Â£3m to Â£5m. The major constituents of this increase arose from the acquisition of the FastTrack Management Services London and Reflex HR businesses, together with the purchase of the minority shareholdings in DriveLink (South East) Limited. Goodwill is amortised over its useful economic life up to a maximum period of twenty years. The Directors regularly review the carrying value of goodwill for appropriateness. Treasury Management Cash Flow Net cash of Â£2m (2003 - Â£2m) was generated from operating activities during the year. After servicing of finance and taxation flows of Â£0.7m, the surplus was reduced to Â£1.3m. The Group spent Â£2.5m of cash on acquisitions and capital expenditure, resulting in a cash outflow before financing of Â£1.2m. The Group funded its investment activities by raising Â£2.3m in cash from the issue of shares, giving rise to a reduction in net debt of Â£1m before accounting for any debt acquired. In the year, the Group acquired further invoice discounting liabilities, as part of the FastTrack transaction, of Â£1.3m, resulting in a small overall increase in net debt at the year end of Â£0.3m to Â£1.6m (2003: Â£1.3m). Cash Management The Group maintains a range of facilities appropriate to the funding of its strategy of expansion by a mixture of organic growth and acquisition. At the year end, the Group's financing arrangements comprised: â€¢ cash at bank of Â£2.9m; â€¢ an unutilised overdraft facility of Â£1.25m; â€¢ outstanding term loans of Â£1.8m repayable over the next four years; and â€¢ amounts owed in respect of factoring and invoice discounting of Â£2.7m. The Group banks with HSBC Bank plc. Nick Hall-Palmer Finance Director CONSOLIDATED PROFIT AND LOSS ACCOUNT Year ended 31 December 2004 Audited Audited 2004 2003 Â£'000 Â£'000 Â£'000 Â£'000 TURNOVER Existing operations 28,730 25,598 Acquisitions 14,991 1,402 Continuing operations 43,721 27,000 Discontinued operations 1,709 2,367 Total turnover 45,430 29,367 Cost of sales (32,289) (18,778) GROSS PROFIT 13,141 10,589 Administrative expenses - normal (11,771) (9,628) - exceptional (303) (144) Total administrative expenses (12,074) (9,772) OPERATING PROFIT Existing operations 628 868 Acquisitions 618 171 Continuing operations 1,246 1,039 Discontinued operations (179) (222) Total operating profit 1,067 817 Interest receivable and similar income - 62 Interest payable and similar charges (325) (196) PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 742 683 Tax on profit on ordinary activities (350) (246) PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 392 437 Equity minority interests (169) (163) PROFIT ON ORDINARY ACTIVITIES ATTRIBUTABLE TO THE MEMBERS OF EMPRESARIA GROUP PLC 223 274 Equity dividends proposed (80) (56) Retained profit for the year transferred to reserves 143 218 Earnings per share (pence) Basic and diluted 1.38 1.85 There are no recognised gains and losses for the current and preceding years other than as stated above. Accordingly no statement of total recognised gains and losses is presented. CONSOLIDATED BALANCE SHEET 31 December 2004 Audited Audited 2004 2003 Â£'000 Â£'000 Â£'000 Â£'000 FIXED ASSETS Intangible assets 4,836 3,014 Tangible assets 284 283 Investment in associates 145 - 5,265 3,297 CURRENT ASSETS Debtors 8,328 5,232 Cash at bank and in hand 2,921 1,008 11,249 6,240 CREDITORS: amounts falling due within one year (7,972) (4,370) NET CURRENT ASSETS 3,277 1,870 TOTAL ASSETS LESS CURRENT LIABILITIES 8,542 5,167 CREDITORS: amounts falling after more than one year (including convertible debt) (1,669) (810) NET ASSETS 6,873 4,357 CAPITAL AND RESERVES Called up share capital 997 751 Other reserve 991 854 Share premium account 2,895 814 Profit and loss account 1,109 966 EQUITY SHAREHOLDERS' FUNDS 5,992 3,385 Equity minority interests 881 972 6,873 4,357 CONSOLIDATED CASH FLOW STATEMENT Year ended 31 December 2004 Audited Audited Note 2004 2003 Â£'000 Â£'000 Â£'000 Â£'000 Net cash inflow from operating activities A 2,027 1,997 Returns on investments and servicing of finance Interest received 12 Interest paid (325) (183) Dividends paid to minority shareholders in subsidiary undertakings (78) - Net cash outflow from returns on investments and servicing of finance (403) (171) Taxation - corporation tax paid (297) (286) Capital expenditure and financial investment Payments to acquire tangible fixed assets (206) (224) Net cash outflow for capital expenditure (206) (224) Acquisitions and disposals Purchase of businesses D (2,256) (1,677) Net cash outflow from acquisitions (2,256) (1,677) Equity dividends paid (59) (37) Net cash outflow before financing (1,194) (398) Financing Issue of new shares 2,257 - Issue of new loan stock - 35 Raising of long term loans 1,000 1,200 Repayment of loan (215) (197) Increase/(decrease) in factoring balances 67 (304) Capital elements of hire purchase contracts (2) (15) Net cash inflow from financing 3,107 719 Increase in cash in the year B 1,913 321 A. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES 2004 2003 Â£'000 Â£'000 Operating profit 1,067 817 Depreciation of tangible assets 272 235 Loss on disposal of tangible fixed assets - 3 Loss on disposal of intangible fixed assets - 17 Amortisation of goodwill 346 273 (Increase)/decrease in debtors (1,218) 83 Increase in creditors 1,560 569 Net cash inflow from operating activities 2,027 1,997 B. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 2004 2003 Â£'000 Â£'000 Increase in cash in the year 1,913 321 Cash inflow from increase in debt (850) (719) Change in net debt resulting from cash flows 1,063 (398) Factoring debt acquired with subsidiary (1,376) - Conversion and cancellation of loan stock 32 97 (281) (301) Opening net debt (1,286) (985) Closing net debt (1,567) (1,286) C. ANALYSIS OF NET DEBT Other 1 January non-cash 31 December changes 2004 Cash flow 2004 Â£'000 Â£'000 Â£'000 Â£'000 Cash at bank and in hand 1,008 1,913 - 2,921 1,008 1,913 - 2,921 Amounts owed to factors (1,257) (67) (1,376) (2,700) Loan stock (32) - 32 - Finance leases (2) 2 - - Long term loans due within one year (225) 225 (239) (239) Long term loans due after one year (778) (1,010) 239 (1,549) (1,286) 1,063 (1,344) (1,567) D. ACQUISITIONS AND DISCONTINUED OPERATIONS Acquisitions during the year contributed Â£547,000 to the group's net operating cash flows, paid Â£149,000 in respect of returns on investments and servicing of finance and utilised Â£26,000 for capital expenditure. As part of the acquisitions the group acquired additional factored debts of Â£1,376,000 which is a significant non-cash transaction. Discontinued operations contributed outflows Â£250,000 (2003: Â£315,000) to the group's net operating cash flows, paid Â£63,000 (2003: Â£44,000) in respect of returns on investments and servicing of finance and utilised Â£39,000 (2003: Â£33,000) for capital expenditure. This information is provided by RNS The company news service from the London Stock Exchange

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