Empresaria Group Regulatory News (EMR)

25 Apr 2005 07:00

Empresaria Group PLC25 April 2005 EMPRESARIA GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2004 HIGHLIGHTS • Turnover up 55% year on year• Adjusted profit before tax up 25% year on year• Successful move to AiM and raising £2.5m (gross) of funds• New business lines and organic growth in UK• Launch of international development programme• Announcement of start up investment in the US ENQUIRIESEmpresaria Group plc Tel: 01293 649 900Tony Martin, ChairmanMiles Hunt, Chief ExecutiveNick Hall-Palmer, Finance Director CHAIRMAN'S REVIEW Empresaria Group plc ("Empresaria") has achieved good results in its firstperiod as an AiM listed company. It has made progress in strengthening andexpanding its UK businesses and made an encouraging start in the development ofits international operations. This follows several years of continued growthand increased profitability. RESULTS Turnover: Turnover £45.4m (2003: £29.4m), an increase of 55%. Net fee income(Gross profit) £13.1m (2003: £10.6m), an increase of 24% Profitability: Excluding amortisation of goodwill and exceptional costs, profitbefore taxation was £1.39m (2003: £1.11m), an increase of 25% Earnings per share: Excluding amortisation of goodwill and exceptional costs EPSwere 4.2 pence (2003: 3.9 pence), an increase of 8% Proposed dividend: The directors are recommending payment of a dividend of 0.4pence per share (2003: 0.375 pence), an increase of 7% Cash flow: During the year the Group generated operating cash flow of £2m(2003: £2m) . Net debt at the year end was £1.6m (2003: £1.3m) CORPORATE DEVELOPMENT Empresaria has a dual focus on managing growth and managing business risk. Thegroup has achieved sustained, consistent turnover and profit growth through thedevelopment of specialist staffing brands. It has done this by a combination oforganic investment, start up and acquisition. Investment across a range ofmarket sectors has reduced exposure to individual market volatility and enabledthe group to channel resources where market conditions are most favourable. Ithas improved both earnings visibility and consistency by shifting the mix of thebusiness from one of predominantly permanent staffing operations to one weightedmore to contract/temporary recruitment. This shift in business mix fuelsturnover growth at the expense of percentage gross margin. Underpinning thisstrategy has been the consistent application of the philosophy of managementequity which helps to ensure that every member of the group company managementteams is highly motivated. The move from OFEX to AiM in October 2004 and the raising of £2.5m has enabledEmpresaria to extend this approach to international development. It is thecompany's intention to identify and enter selected international staffingmarkets with particularly high potential and where the management equityphilosophy and the Empresaria structure will prove inspirational. Thisevolution to an international staffing business will also diversify risk awayfrom 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 theJapanese government to liberalise the industry and create more flexible workingpractices in order to stimulate economic growth. The new company, SkillhouseStaffing, operates within the IT staffing market. It commenced trading inDecember last year and already the financial performance is exceeding ourexpectations. We announce today the completion of our second international investment with thestart up of a new company, Gerard Stewart Inc based in Atlanta Georgia. The newcompany will provide recruitment services to the US staffing industry, anextension of our successful existing operations within this market sector in theUK where we operate under the McCall and Gerard Stewart brands. Empresaria will seek out similar opportunities in international markets and movequickly 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 liketo thank all of them for their efforts this year. SHAREHOLDERS We thank our shareholders for their confidence and support in the company andparticularly those new investors who subscribed to our November 2004 equityissue. PROSPECTS The group has started 2005 well. We are seeing positive activity in all ourmarkets with only financial services experiencing a slow start to the year incomparison with the strong first quarter of 2004 and our public sectorbusinesses in particular are performing well. This gives confidence as to theoutcome for the year. Your group is meanwhile pursuing a number ofopportunities both within the UK and overseas that, if converted, will continueour path towards developing a broad based international specialist staffinggroup. Tony MartinChairman CHIEF EXECUTIVE'S REVIEW GROWTH Since its inception Empresaria has been firmly committed to growth. Over thepast three years turnover has increased by an average of 34% annually, adjustedprofit before tax by 42% and EPS by 55% on the same basis. This has beenachieved by a balanced combination of organic growth, investment in start-upsand acquisition, and the sustained development of each of these three strandsremains the strategy for the future. ORGANIC GROWTH The year under review saw a substantial increase in investment in organicgrowth. This was partly driven by improved market conditions in general, butalso by specific opportunities in certain sectors. A number of companies invested in branch network expansion as well as ITprojects during the year. In particular, DriveLink, our contract HGV business,invested in new branches in the Midlands and North West as well as developingand successfully commissioning a new automated back office system. Ourinsurance recruitment businesses, Lime Street Recruitment and Mansion HouseExecutive, opened up new offices in Birmingham, Manchester and Maidstone. Wealso invested in new branches within our social work and property salesrecruitment operations. We expect to see benefits of these investmentsaccruing in 2005 and 2006. The total revenue cost of this additional programme, combined with theinvestment in start up companies was approximately £500,000 in 2004. Addingthis sum back to our adjusted PBT figure, organic PBT growth was 17% year onyear and underlying organic EPS grew by 6%. START UPS We invested in two start ups in 2004. The first of these, established inSeptember, was Second City Resourcing, providing contract and permanentmarketing and PR professionals. The company is performing in line withexpectations but is not expected to contribute to earnings in 2005. The second investment was in Skillhouse Staffing, a Tokyo based contract ITcompany, an opportunity introduced to us by Tony Martin. The investment wasmade in September but, owing to the length of the registration process in Japan,commenced trading in December. The investment in Skillhouse Staffing was madethrough an investment vehicle with shared ownership and funding commitmentsshared equally between Tony and Empresaria. It was always the intention forEmpresaria to acquire the shares held by Tony once the business was up andrunning. Early indications are positive and we anticipate seeking shareholderapproval 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 inAtlanta, Georgia. The Gerard Stewart brand is used by McCall, our UK based "recruitment to recruitment" business for the provision of retained search andsenior recruitment management services. The new company will provide similarservices to the US staffing industry. We expect to benefit from the access toUS market knowledge and staffing contacts that this investment provides and withthese the potential to gain access to further US investment opportunities. ACQUISITIONS The group made three acquisitions in 2004. The first two of these were boughtat the same time in early 2004, FastTrack Management Services, a provider ofcontract trades to the construction and property services sector and also Bar 2,a provider of payroll and administration services to contract staff operatingunder composite company arrangements. The performance of both companiesexceeded expectations in the year. This was due partly to cost savings, partlyto increased geographical coverage and, most encouragingly, to cross selling andsharing of key customers with other companies within the Group. This is a trendwhich is being fostered at all levels of management. The third acquisition, made in July 2004 was that of Reflex HR a specialistcontract and permanent staffing business in the building management servicessector. Reflex performed in line with expectations. We have made one acquisition since the year end, acquiring a total of 65% of TheRecruitment Business ("TRB") in February 2005. TRB comprises three separatelybranded divisions, MacPeople, WebPeople and CreativePeople, each supplyingcreative and design related staff on both a permanent and contract basis to arange of markets including the media, public and financial services sectors.This acquisition is expected to make a substantial contribution to profits inthe current year. DISPOSALS AND RESTRUCTURING We view the Empresaria group of companies as a portfolio to be managed formaximum growth and long term returns. The performance and perceived potentialof group companies are under constant review. Where appropriate we willconsider selling, restructuring or closing businesses that are possiblyunder-performing or deemed best-suited outside rather than inside the group. In 2004 we re-branded our existing TMR businesses "FastTrack" following theacquisition of FastTrack Management Services. In April we sold off theunder-performing permanent recruitment operations of the TMR business based inMaidstone and, in October, relocated the more successful TMR contractrecruitment operations to the FastTrack head office in Watford. In January 2005 we completed the sale of the MC(2) Management Consultingbusiness to the management team for total consideration of £491,000. MC(2) isa permanent recruitment business servicing the property and constructionsectors. A combination of low growth and earnings volatility precipitated theopening of negotiations with the management team. As part of the salenegotiations with management it was agreed not to pursue a number of disputedinvoices, which we believed to be recoverable, and which would have been pursuedif the company had remained part of the Group. The impact of this decision wasthe incurring of an exceptional loss of £135,000 and which is shown as anexceptional operating cost from discontinued operations in the Group accounts.Payment of £287,000 of the total consideration is deferred until 2006 and 2007. SECTOR OVERVIEW FINANCIAL SERVICES Turnover in 2004 was £3.7m (2003: £3.1m), up 19%. We benefited in 2004 from theupturn in the banking sector and a return to growth after two years of decline.The banking recruitment market remains positive although we do not anticipaterecent growth rates to continue into 2005. The insurance market has beencharacterised by consolidation within the client base and increasing trendstowards centralisation and outsourcing of HR functions, including recruitment.In the short term we see this trend impacting on growth rates and possibly grossmargin but see long term benefit from the increased barriers to entry that thesetrends create for new entrants to this market. SUPPLY CHAIN Turnover in 2004 was £6.9m (2003: £7.4m), a drop of 6%. 2004 was a year ofsubstantial structural change and development for our DriveLink drivingrecruitment businesses. New branches were established in the Midlands and Northand substantial investment was made in centralised administration systems. Asreported in September 2004, the driving market was subdued in the second andthird quarters of the year with demand lower than previous years. Thisslowdown, combined with flat performances from a number of establishedSouth-East branches, held the sector back in growth terms in the year. Thefinal quarter of 2004 showed a return to normal anticipated seasonal demand andwe expect an improved performance in 2005. CONSTRUCTION, PROPERTY SERVICES AND ENGINEERING Turnover in 2004 was £25m (2003: £10.4m), a rise of 140%. Year on year growthwas driven largely through the acquisition of FastTrack and Reflex supplementedby strong underlying growth at our existing shop fitting and interiorsrecruitment business (FastTrack Midlands) and steady progress at TeamSales. Thebroader construction and property services markets remain strong. PUBLIC SECTOR Turnover in 2004 was £6.7m (2003: £5.1m), a rise of 31%. We saw strong growthfrom both our allied healthcare staffing business, Healthcare First ("HCF"), andalso in contract social work through Social Work Associates ("SWA"). Bothcompanies increased staff numbers and turnover in their core operations, withSWA also expanding into the Midlands with an office in Leicester and HCFdeveloping its specialist nursing operations from its new office inWolverhampton. Both the healthcare and social care markets continue toexperience significant changes. To date we have benefited from operatingflexible, low cost operations within specialist markets that have seen limitedimpact from changing government procurement practices. SPECIALIST BRANDS In 2004 turnover was £3.1m (2003: £2.9m after deducting 2003 contribution fromdiscontinued operations), a rise of 7%. Greycoat Placements (domesticrecruitment) continues to strengthen its position as the leading brand in itssector and is looking at potential branch expansion. Empresaria will continue to build a high quality portfolio of specialist brandsin this very fragmented industry. Miles W R HuntChief 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 throughtemporary and contract revenue. In 2004, 51% of the Group's gross margin wasgenerated by the temporary and contract businesses, compared with 45% in 2003.As the contribution to gross margin from the temporary and contracts businessesincreases, the overall gross margin percentage will reduce further in the comingyears. Profitability The Group uses adjusted profit before taxation (PBT) as its principal measure ofoperating performance. Profits before tax are adjusted to remove the effects ofgoodwill amortisation and any exceptional costs or gains incurred during theyear. A reconciliation of the statutory and adjusted profit is provided in theadditional information. Adjusted PBT for the year rose by 25% to £1.39m (2003: £1.11m) for the wholeGroup. Adjusted PBT from continuing operations rose by 18% to £1.47m (2003:£1.25m). Exceptional costs Exceptional costs of £303,000 were incurred in the year, of which £168,000related to costs in operations discontinued at the year end, principally in MC2Management Consulting Ltd, the business of which was sold to its management teamshortly after the year end. A further £60,000 related to legal costs at MVP and£41,000 was incurred in moving to AiM, with the majority of the balance beingdue to the integration of FastTrack Management Services South East Limited intoFastTrack Management Services London Limited. Taxation The effective rate of corporation tax to headline profit before tax hasincreased from 36% in 2003 to 47% in 2004. The increase is due to a combinationof the rise in goodwill amortisation arising on consolidation and tax lossesarising in various companies including the MC(2) business, on which nocorporation tax relief could be obtained. These losses remain unrelieved due tothe group's share ownership structure, which leaves several companies outsidethe 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 FRS19. 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 andexceptional 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 theGroup listed on AiM. The purpose of the fund-raising was to make earningsenhancing investments, the benefits of which will be felt from 2005. Had theshare capital not been increased, adjusted EPS would have been 4.5 pence, anincrease 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 shareconsolidation). Move to AiM Raising of funds In November 2004 the Group listed its shares on the Alternative InvestmentMarket ("AiM"). As part of the process, £2.5 million before costs was raisedfrom the issue of new shares. These funds are being used to fund organic growthand acquisitions in line with the Group's growth strategy. Share Consolidation In conjunction with the move to AiM, a share consolidation took place, wherebyone new ordinary share with a nominal value of 5 pence was issued for every twoand a half old shares with a nominal value of 2 pence. The earnings per share figures quoted above have been adjusted to reflect theeffects of this consolidation. Acquisitions and disposals Acquisitions During the year the Group acquired three businesses and significantly increasedits 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 inFastTrack Management Services Limited for an initial consideration of £1,100,000(£1m cash and £100,000 shares in Empresaria), deferred cash consideration of£150,000 with potential further consideration of up to £730,000 being payabledependent on financial performance in 2004 and 2005. The maximum cash element ofthe remaining deferred consideration is £100,000, with the balance being payablein Empresaria shares. FastTrack is a provider of contract recruitment services to the constructionindustry with offices in Watford and Blackburn. Purchase of Bar 2 Limited On 9 February 2004, the Group completed the acquisition of a 66% shareholding inBar 2 Limited, a provider of payroll administration services based in Cheshamfor a nominal consideration. Purchase of Reflex HR On 2 August 2004, Empresaria acquired Reflex HR ("Reflex"), a recruitmentbusiness focusing on the supply of contract and permanent staff to the BuildingServices sector. The acquisition was made through a newly established company(Reflex HR Limited) which paid £732,000 in cash for certain assets and thegoodwill of Reflex. Up to a further £168,000 of deferred consideration may bepayable in shares depending on the financial performance of Reflex HR limitedover 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 issuedshare capital of DriveLink (South East) Limited, for a maximum aggregateconsideration of £293,000. The initial consideration of £146,500 was satisfied by the issue of shares inEmpresaria. Deferred consideration of £146,500 in Empresaria shares is to bepaid 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 TheRecruitment Business Limited ("TRB"), a company specialising in the placement oftemporary and permanent staff for roles including graphic and web designers,copywriters, typographers, art workers, Mac operators, studio managers and printbuyers. The initial consideration was £1.3 million, which has been satisfied by£950,000 in cash and the balance in shares in Empresaria. The initialconsideration includes a payment, on a pound for pound basis, of £300,000 forthe net cash currently within the business. Deferred consideration of up to£725,000 may be payable based on the operating profit and cash position of TRBin 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 andgoodwill of MC(2) Management Consulting Limited to the management team, whopurchased 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 theGroup Balance Sheet increased by £2m, from £3m to £5m. The major constituents ofthis increase arose from the acquisition of the FastTrack Management ServicesLondon and Reflex HR businesses, together with the purchase of the minorityshareholdings in DriveLink (South East) Limited. Goodwill is amortised over its useful economic life up to a maximum period oftwenty years. The Directors regularly review the carrying value of goodwill forappropriateness. Treasury Management Cash Flow Net cash of £2m (2003 - £2m) was generated from operating activities during theyear. After servicing of finance and taxation flows of £0.7m, the surplus wasreduced to £1.3m. The Group spent £2.5m of cash on acquisitions and capital expenditure, resultingin a cash outflow before financing of £1.2m. The Group funded its investment activities by raising £2.3m in cash from theissue of shares, giving rise to a reduction in net debt of £1m before accountingfor any debt acquired. In the year, the Group acquired further invoice discounting liabilities, as partof the FastTrack transaction, of £1.3m, resulting in a small overall increase innet debt at the year end of £0.3m to £1.6m (2003: £1.3m). Cash Management The Group maintains a range of facilities appropriate to the funding of itsstrategy of expansion by a mixture of organic growth and acquisition. At the year end, the Group's financing arrangements comprised: • cash at bank of £2.9m;• an unutilised overdraft facility of £1.25m;• outstanding term loans of £1.8m repayable over the next four years; and• amounts owed in respect of factoring and invoice discounting of £2.7m. The Group banks with HSBC Bank plc. Nick Hall-PalmerFinance Director CONSOLIDATED PROFIT AND LOSS ACCOUNTYear ended 31 December 2004 Audited Audited 2004 2003 £'000 £'000 £'000 £'000 TURNOVERExisting operations 28,730 25,598Acquisitions 14,991 1,402 Continuing operations 43,721 27,000Discontinued operations 1,709 2,367 Total turnover 45,430 29,367Cost 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 PROFITExisting operations 628 868Acquisitions 618 171 Continuing operations 1,246 1,039Discontinued operations (179) (222) Total operating profit 1,067 817Interest receivable and similar income - 62Interest 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 TOTHE MEMBERS OF EMPRESARIA GROUP PLC 223 274 Equity dividends proposed (80) (56) Retained profit for the year transferred toreserves 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 yearsother than as stated above. Accordingly no statement of total recognised gainsand losses is presented. CONSOLIDATED BALANCE SHEET31 December 2004 Audited Audited 2004 2003 £'000 £'000 £'000 £'000FIXED ASSETSIntangible assets 4,836 3,014Tangible assets 284 283Investment in associates 145 - 5,265 3,297CURRENT ASSETSDebtors 8,328 5,232Cash 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 RESERVESCalled up share capital 997 751Other reserve 991 854Share premium account 2,895 814Profit 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 STATEMENTYear ended 31 December 2004 Audited Audited Note 2004 2003 £'000 £'000 £'000 £'000 Net cash inflow from operating activities A 2,027 1,997 Returns on investments and servicing of financeInterest received 12Interest paid (325) (183)Dividends paid to minority shareholders insubsidiary undertakings (78) - Net cash outflow from returns oninvestments and servicing of finance (403) (171) Taxation - corporation tax paid (297) (286) Capital expenditure and financial investmentPayments to acquire tangible fixed assets (206) (224) Net cash outflow for capital expenditure (206) (224) Acquisitions and disposalsPurchase 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) FinancingIssue of new shares 2,257 -Issue of new loan stock - 35Raising of long term loans 1,000 1,200Repayment 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 FROMOPERATING ACTIVITIES 2004 2003 £'000 £'000 Operating profit 1,067 817Depreciation of tangible assets 272 235Loss on disposal of tangible fixed assets - 3Loss on disposal of intangible fixed assets - 17Amortisation of goodwill 346 273(Increase)/decrease in debtors (1,218) 83Increase 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 £'000 £'000 Increase in cash in the year 1,913 321Cash 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 £'000 £'000 £'000 £'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 £547,000 to the group's net operatingcash flows, paid £149,000 in respect of returns on investments and servicing offinance and utilised £26,000 for capital expenditure. As part of theacquisitions the group acquired additional factored debts of £1,376,000 which isa significant non-cash transaction. Discontinued operations contributed outflows £250,000 (2003: £315,000) to thegroup's net operating cash flows, paid £63,000 (2003: £44,000) in respect ofreturns on investments and servicing of finance and utilised £39,000 (2003:£33,000) for capital expenditure. This information is provided by RNS The company news service from the London Stock Exchange