Empresaria Group Regulatory News (EMR)

1 March 2017

Empresaria Group plc

("Empresaria" or the "Group")

Results for the year ended 31 December 2016

Strong growth in profit before tax and adjusted earnings per share

Empresaria, the international specialist staffing group, has continued to deliver on its strategy with record profit before tax and growth in adjusted earnings per share.

· Fourteen consecutive quarters of net fee income growth

· Five consecutive years of double digit % growth in adjusted earnings per share

· Conversion ratio increased to 16.6% (2015: 16.3%)

· Proposed final dividend increased by 15% to 1.15p (2015: 1.0p)

· Net debt increased to £10.5m (2015: £7.3m) following the investments made in the period

· Strong profit growth in German business, IT sector in Japan and Executive search in South East Asia

· Successful integration of Pharmaceutical Strategies

· Investments in Rishworth Aviation and ConSol Partners: strong brands with significant growth potential

* adjusted to exclude amortisation of intangible assets, exceptional items, gain or loss on disposal of business and fair value charges on acquisition of non-controlling interests.

Chief Executive Joost Kreulen said:

"Empresaria has delivered another year of record profit and strong growth in adjusted earnings per share, demonstrating the strength of our diversified business model. We are focused on delivering on our strategy: strengthening a multi-branded group, with an emphasis on developing leading brands that are diversified and balanced by geography and sector.

Alongside the solid performances across a number of countries, we are particularly pleased to have secured two significant international investments during the year; Rishworth Aviation and ConSol Partners. Both brands operate in sectors with good long-term growth prospects and complement the Group's 'Invest & Develop' strategy. We look forward to the growth opportunities that these businesses have as part of the Group.

We continue to see exciting growth opportunities to develop our Group and deliver increased profits and we look to 2017 with confidence."

 - Ends -

Enquiries:

Notes for editors:

· Empresaria Group plc is an international specialist staffing group with 21 brands operating in 19 countries across the globe including the UK, Germany, Japan, India, UAE, Indonesia, Chile, Australia, Thailand, Singapore, Finland, USA, New Zealand, China, Malaysia and the Philippines.

· Empresaria offers temporary/contract and permanent staffing solutions as well as Offshore Recruitment Services in seven key sectors: Technical & Industrial, Aviation Services, IT & Design, Professional Services, Healthcare, Executive search and Retail.

· Empresaria applies a multi brand, management equity philosophy and business model, with Empresaria group company management teams holding significant equity in their own business.

· Empresaria is listed on AIM under ticker EMR. For more information: empresaria.com

Chairman's statement

Performance overview

* Adjusted to exclude amortisation of intangible assets, exceptional items, gain or loss on disposal of business and fair value charges on acquisition of non-controlling interests.

** The constant currency movement is calculated by translating the 2015 results at the 2016 exchange rates.

The Group has delivered another year of strong growth in profit and adjusted earnings per share. We have again demonstrated the strength of our multi-branded business model, with a strategy to be diversified by geography and sector and to develop leading brands with sector expertise. As we enter 2017, the Group continues to strengthen its position, as our focus on delivering against our strategy is reflected in our trading performance and resilience to uncertain market conditions.

- Revenue grew by 44%, primarily in the Technical & Industrial sector and from the investments made in 2016. Additionally, our business mix has changed following our decision in the last few years to reduce our exposure to low margin, high volume business in the UK Technical & Industrial sector.

- Net fee income grew by 20% with profit before tax up 11% (23% on an adjusted basis). We are pleased to report fourteen consecutive quarters of year-on-year growth in net fee income.

- Share of net fee income from Temporary recruitment is up to 60% (2015: 55%), continuing our focus to deliver a higher proportion of our income from contracting, which is generally more predictable than permanent recruitment.

- A balanced and diversified spread of operations, with 68% of net fee income from outside the UK (2015: 63%). We generate 72% of our net fee income from the four largest staffing markets in the world (USA, Japan, UK and Germany) but also 28% from high growth markets including South East Asia, China, India and Australia.

- We have invested in two sectors with exciting long-term growth prospects through our investments in Rishworth Aviation (Aviation sector) and ConSol Partners (IT, Digital & Design sector). These transactions completed three important investments in a twelve-month period to October 2016, starting with Pharmaceutical Strategies in October 2015, adding strong brands to the Group that have good growth potential in the years to come.

Group revenue of £270.4m was up 44% on the prior year of £187.3m, with a 50% growth in temporary revenue and 7% growth in permanent revenue. The growth in net fee income was 20%, with a reduced temporary margin of 14.5% (2015: 16.7%). This is largely due to Rishworth Aviation having a lower margin than the rest of the Group at 6%, although this margin is earned over a long period as their temporary contracts typically last between three and five years. Also in Germany there was a reduced margin from changes in the client mix and tariffs.

We continued to see an improvement in our conversion ratio, for the fifth year in a row, increasing from 16.3% to 16.6% with costs controlled despite further investments in the business. Operating profit grew 12% to £8.5m (2015: £7.6m), after a £0.7m increase in amortisation charges to £1.1m. With interest costs higher due to the debt taken on to help fund the investments, profit before tax growth was 11% to £7.9m (2015: £7.1m). On an adjusted basis, excluding amortisation, exceptional items and fair value charges on the acquisition of non-controlling interests, both operating profit and profit before tax grew 23% over the prior year.

Diluted earnings per share was unchanged at 9.3p, again impacted by higher amortisation costs. On an adjusted basis it grew by 14% to 11.3p, delivering the fifth year in a row of double digit growth.

The results this year have been impacted by currency movements, especially in the second half of the year. There was a small negative impact on the trading results, but overall it has been positive for the Group, with a benefit from the translation of overseas profits into Sterling. On a constant currency basis revenue growth was 33%, net fee income was up 10% and adjusted profit before tax was up 11%.

After seeing our total debt level reduce through 2014 and 2015, this year it increased to £10.5m (2015: £7.3m) as we took the decision to fund our investments in the year by using operating cash flows and new bank debt. We entered into a five year Revolving Credit Facility with HSBC Bank plc on 30 June 2016. Interest rates are at low levels and are generally expected to remain low in the short-term. This access to low cost debt with our long-term banking partner provided the best option to finance the investments in 2016. Our underlying philosophy remains to fund investments through equity or operating cash flows and to use debt for working capital funding. We continue to target a 'debt to debtors' ratio of no more than 25%. We measure this by excluding the cash held by Rishworth Aviation for pilot bonds, which ultimately is repayable to pilots at the end of their contracts, and at year end this ratio was 38% (2015: 23%) (see note 12 for further details). We expect to reduce this to 25% by the end of 2018, in line with our five year plan.

Investments

We follow an Invest and Develop strategy, with a focus on investing in our existing brands, to help develop them to build long-term sustainable profit streams. To complement this, we also look for external investment opportunities to accelerate the growth of the Group and increase our presence in sectors where we feel we are under-represented.

In line with this strategy, in 2016 we made two significant investments. In July 2016 we invested in Rishworth Aviation, a pilot leasing staffing business operating from offices in New Zealand and Sweden, servicing clients throughout Asia Pacific, UK, Continental Europe and Africa. Rishworth provides pilots on a contracting basis and is already diversified geographically. Air travel is predicted to increase with high growth rates over the mid-term, especially in the emerging markets in Asia and Africa where Rishworth has a good presence, and we see good prospects for the business over the medium and long term.

In October 2016 we invested in ConSol Partners, which operates in the IT staffing sector, servicing the high growth areas of Communications & mobile, Cloud technologies and the Digital supply chain. They have offices in the UK and USA, with the UK team primarily servicing clients across the UK and Continental Europe and the USA team focused on its domestic market. This investment strengthens the Group's presence in an important sector, which is exhibiting strong growth trends and has excellent potential.

People

A key part of our business model is subsidiary management equity, aligning key management and Empresaria shareholder interests through brand management holding shares in their operating companies. This approach helps Empresaria to attract and retain the best people. At the end of the year we had 57 management shareholders, owning shares in different Group companies, up from 42 last year.

The Group has a dedicated Board and we are working hard to deliver growth, manage risk and improve our long term financial performance, to generate higher shareholder returns. The Board is extremely experienced, with over 100 years of combined staffing industry experience.

The success of the Group comes from the hard work and commitment of our staff and the Board would like to thank every individual for their contribution to the business.

Governance

We have an established Governance system in place to deliver on our vision. The Group follows high standards of corporate governance which we believe is a core requirement for a successful business operating a decentralised model across different regions and brands. There is a strong culture of financial control in the Group, with clear policies covering corporate conduct and governance. The Board develops the Group's corporate governance arrangements with reference to the UK Corporate Governance Code.

The values and culture of the Group, which are based on shared ownership and true operational autonomy for brand managers, is very important to the Board and key to our long-term growth prospects. We focus our investments towards people that share these values.

Dividend

The Board has reviewed the dividend in the light of the positive trading result and overall financial position. In line with our progressive dividend policy, for the year ended 31 December 2016 the Board has proposed a final dividend of 1.15p per share (2015: 1.0p per share) which, if approved by shareholders at the Annual General Meeting, will be paid on 31 May 2017 to shareholders on the register on 5 May 2017.

Outlook

The Group's strategy has delivered strong profit and adjusted earnings per share growth. We are confident that 2017 will be another year of profit growth with the Group benefiting from the potential within its existing brands and also the investments made in 2016 contributing for a full year.

Our diversification by geography and sector helps to mitigate against difficult markets and as such we continue to see exciting opportunities to develop our Group, deliver increased profits and so enhance shareholder value. We look forward to the year ahead with confidence.

Tony MartinChairman28 February 2017

Chief Executive's Review

We are pleased to finish the year with a record profit level, an adjusted profit before tax of £9.2m (2015: £7.5m). We also grew the Group with two high quality brands joining during the year, helping to strengthen our presence in the IT, Digital & Design sector and entering into the new high growth Aviation sector. Both brands are already diversified by geography and we believe we can help them to grow further by being part of our Group.

Our strongest results were in Germany with Headway, Japan with Skillhouse and South East Asia with Monroe Consulting. We also saw solid performances in Finland, Australia, China, India, Chile and within the UK market the Technical & Industrial sector grew well. Group revenue increased by 44% to £270.4m (2015: £187.3m) and net fee income was up 20% to £59.0m (2015: £49.2m). Our organic development was offset by weakness within the UK and Middle East markets. The UK was negatively impacted by market wide lower confidence levels due to the EU referendum and in the Middle East, a permanent recruitment market, weak economic conditions persisted throughout the year. We have mitigated the effects of this with some restructuring and we believe this will help those businesses deliver improved results in 2017. As seen historically, the Group has demonstrated a good track record for quickly responding to issues within our business and returning those businesses to growth and as an active Management team we continue to closely monitor results for all our brands and assist them with both challenges and opportunities alike. The level of diversification across the Group mitigates against any individual business, sector or market having an undue influence on the wider Group results.

The weakening of Sterling during the year helped the translation of our overseas results. On a constant currency basis we saw revenue growth of 33%, net fee income growth of 10% and adjusted profit before tax up 11%. The underlying growth in net fee income was effectively from the investments made in Rishworth Aviation and ConSol Partners in 2016 and the full year impact from Pharmaceutical Strategies that joined the Group in October 2015. Again this demonstrates the benefit of our strategy to be diversified and balanced by geography and sector and to focus on both organic development as well as making selective external investments, with a slow-down in one sector or region offset by stronger results elsewhere.

For 2016 we have more than two thirds of our net fee income generated from outside the UK, with Asia Pacific and UK both at 32%, Continental Europe at 28% and Americas at 8%. We analyse our regional performance based on the locations where key management and staff are situated, with the majority of our brands only working in their domestic market.

Pharmaceutical Strategies, the investment we made in 2015, has integrated well into the Group. We are pleased that it has grown its client base and seen an improved penetration across existing clients. Our decision to invest in the management team, bringing in additional staff to support the future development of the business, and their largest client reducing its overall spend on staffing requirements has resulted in a short-term impact on profitability. The long-term drivers of growth in the US healthcare market of an ageing population, increasing levels of obesity and positive economic conditions remain in place and give us confidence in the prospects for this business.

The two investments made in 2016 were both clearly aligned to our strategic goals, being established brands in their sectors, focused on professional and specialist job roles in sectors with good long-term growth prospects. They are already diversified geographically but can also benefit from the Group's coverage and global footprint. They both have a strong contractor bias and have delivered good profit growth and we see opportunities for further growth in the next few years. We are focused on integrating these businesses into the Group, to ensure they get the maximum benefit from being part of Empresaria. We continue to see external investment as an important avenue of growth and development for the Group and we will look to build up our portfolio of opportunities through the coming year, especially in areas where we feel we are under-represented as a Group. From a sector point of view that is Healthcare and Professional Services and regionally Latin America, but we keep an open mind to opportunities that present themselves.

As part of our vision to deliver sustainable growth in earnings per share, we are following a five year growth plan to 2018. We have made further progress against this plan with growth in net fee income of 20% (10% in constant currency) and an increase in the conversion ratio to 16.6%, the fifth year of continued improvement. Our 'debt to debtors' ratio increased from 23% to 38%, when calculated after excluding the cash held for pilot bonds in Rishworth Aviation, so moves away from our 25% target. This was following our decision to use debt finance to help fund the investments made in the year. We expect to achieve our 25% 'debt to debtors' target by 2018.

Organic growth is a core part of our business model and we have specific plans with each brand to help them develop into leading brands in their sectors. We are confident that the plans we are following will help the Group deliver profitable growth across all of our regions in 2017.

Regional performance

UK

Revenue increased by 12% and net fee income was up 3%, due to the addition of ConSol Partners from October 2016 and an improved result in the Technical & Industrial sector following the move away from low value work in the last few years. This focus on higher value work also helped lessen the impact from the change in rules on travel and subsistence in April 2016. At the beginning of 2017 we merged the operations of the FastTrack and Reflex brands. Both operate within the Technical & Industrial sector and are complementary in terms of niche focus and client base. We expect to see cost savings in the back office and a streamlined management structure, which we hope will also lead to improved top line performance. The combined business has a good coverage across the UK with offices in the North, Midlands, London and South and we have plans to grow their fee-earning staff numbers in 2017.

The investment in ConSol Partners strengthened our presence in the IT, Digital & Design sector, with our existing brands operating within the creative niche of this sector. The contribution from ConSol Partners was positive at the net fee income level with a small profit contribution before amortisation charges, but this is offset by the legal and due diligence costs incurred in making the investment. We expect to see a significant profit contribution in 2017, their first full year in the Group. Within the creative niche our brands saw a reduced result, following increased property costs and short-term impacts from changes in management. We are confident of an improved result from these businesses next year.

Our brands in Domestic services, Recruitment-to-recruitment sales and Retail (new house sales) delivered broadly flat profits year on year.

We saw the biggest impact from the EU referendum within the Professional services sector, with net fee income and profit both down year on year. The market stabilised following the vote, but activity levels were lower and costs were higher in the year from both property and staff costs as they invested in building up a service offering in Finance and accounting.

Continental Europe

Revenue grew by 22% and net fee income by 16%, with strong profit growth of £1.0m to £4.9m. There was a reduced temporary margin in Germany, due to changes in the client mix and pay rate tariffs. Currency movements were beneficial, with constant currency growth in net fee income of 2%.

The Headway business in Germany and Austria dominates the region and we saw a good result in Austria, following a key project win during the year. The Logistics division in Germany also had strong results through increased penetration with key clients. In the temporary staffing division, investments have been made in training and sales staff to help drive future growth. The business confidence in Germany is positive as we move into 2017, however, we are cautious about the short-term prospects for the market. There are elections in Germany in September 2017 and new legislation will be implemented in April 2017 which will limit the time a worker can be on a temporary contract with a client to 18 months, as well as new equal pay regulations being introduced. We believe the new rules will be positive for the industry over the medium term but there may be a short-term dampening effect on demand as clients get to grips with the new rules. The first direct impact of this legislation will be in October 2018 and we are working with clients and advisers on plans to deal with the new rules where they have long-standing temporary workers.

Our healthcare business continues to improve, with an increasing proportion of temporary workers from Finland and lower costs, having closed their Estonian presence at the end of 2015. We are pleased with the progress being made.

Asia Pacific

Revenue grew from £29.2m in 2015 to £77.3m in 2016, helped from July 2016 by our investment in Rishworth Aviation. The growth in net fee income was 31%, as Rishworth Aviation has a low temporary margin of 6%, so there is a greater impact on revenue. Although the temporary margin is low, the quality of the business is high with contractors on long-term assignments and the company operating with a good conversion ratio. This investment made a positive contribution to profit, despite the legal and due diligence costs associated with the investment. It provides the Group with an entry to the Aviation sector and is one of the leading staffing companies in this niche sector. We expect it to deliver improved profits in 2017 as it contributes for the full year.

There were strong performances from Skillhouse in Japan (IT, Digital & Design sector) and Monroe Consulting in South East Asia and China (Executive search sector). Also, we were pleased with the results in India and Australia. In India we opened up a third office in November 2015 to accommodate growth and it is operating in line with expectations, but profit growth was curtailed due to currency impacts, as sales and receivables with the UK contributed less due to exchange rate movements. The Monroe Consulting brand saw particularly strong results from China and Malaysia, with China operating in its first full year under the Monroe brand and Malaysia profitable in its second full year. They are planning to open up in Vietnam during 2017. The restructuring of our training business in Indonesia has been successful, but we expect profit growth to be slow.

Overall the region benefitted from currency movements, with underlying results excluding currency and investments reducing year on year, due to poor results in the Middle East. The market was negatively affected by the drop in oil price and the weak economic conditions continued into the second half of the year. This resulted in a loss of business confidence with delayed hiring decisions which quickly impacted this purely permanent staffing market. Our net fee income was down 50% over the year. We have restructured the business, with a reduced headcount and lower costs and believe it is right-sized for the local market moving into 2017. A small team has also started operating in the UK market, to help ex-pat candidates returning from the Middle East.

Americas

Revenue grew by 53% to £31.0m, with net fee income up 119% to £4.6m. This is primarily from having a full year contribution from Pharmaceutical Strategies, an investment made in October 2015. The business made progress in broadening their client base, with some new clients won and a better penetration across existing clients. However net fee income was down year on year as their largest client reduced their agency spending. We also made investments in the management team to support the platform for future growth, but this cost had a short-term impact on profits. The future structure and funding of the Affordable Care Act is uncertain following the recent change in the US Government. This has been one of the drivers of growth in the healthcare sector in recent years, but the key underlying factors of an ageing population, rising obesity levels and good economic conditions continue to exist and we believe they will drive growing demand for healthcare over the medium term.

We also benefitted from three months of trading from the ConSol Partners USA business.

In Chile, we were pleased with the continued growth, with the developing areas of permanent and temporary staffing delivering the highest growth and the traditional outsourcing business remaining solid.

The Monroe Consulting (Executive search sector) operations in Mexico and Chile are slowly gaining traction in those markets, but progress is not as quick as we would like to see. We are closely monitoring the economic situation, especially in Mexico, following the new US Government's approach to regional trade.

Finance review

Finance income and costs

Finance income was £0.1m (2015: £0.1m), all being bank interest income. Finance costs were £0.7m (2015: £0.6m), which primarily related to interest payable on invoice discounting, bank loans and overdrafts. It also included £0.1m of interest on the late payment of tax following conclusion of a tax audit in Germany.

Taxation

The total tax charge in the year is £3.5m (2015: £2.6m) representing an effective tax rate of 44% (2015: 36%). This rate is higher than the UK rate due to a number of factors:

· The mix of profits is weighted towards higher tax jurisdictions, including Germany, Japan, India, Australia and New Zealand.

· A deferred tax asset has not been recognised for certain of the tax losses around the Group and the asset previously recognised for tax losses has reduced.

· The level of non-deductible expenses in the year, including the legal and due diligence costs related to the investments in Rishworth Aviation and ConSol Partners.

Dividend

During the year, the Group paid a dividend of £0.5m in respect of the year ended 31 December 2015, amounting to 1.0p per share. For the year ended 31 December 2016, the Board is proposing a dividend of 1.15p per share, which if approved by shareholders at the Annual General Meeting, will be paid on 31 May 2017 to shareholders on the register on 5 May 2017.

Impairment charges and release of contingent consideration

There is a credit to the income statement of £0.6m from the release of contingent consideration for Pharmaceutical Strategies. This is based on the current and expected trading level over the next year (being the period covered by the contingent consideration) and reflects our best estimate of the amount payable.

There is an impairment charge of £0.6m, following a review at year end of the recoverable amounts of the Group's tangible and intangible assets. This arose on the following companies:

· BW&P operating in the Middle East. Following a slow-down in the local economy and contraction in the staffing market we have restructured the business, right-sizing it for the current conditions. We expect improved returns from this business in 2017, but due to the continuing uncertainties in the market we have fully impaired the intangibles and goodwill, an amount of £0.2m.

· Our training business in Indonesia, Learning Resources, has delivered a small profit in the year following restructuring in the prior year, turning around the losses incurred in 2015. However, we remain cautious on the prospects for growth in profit over the next few years and so have fully impaired the goodwill, an amount of £0.2m.

· In Japan our fashion retail brand, FINES, has delivered consistent results but profit levels are small. We have a clear plan to increase the profit level but there is uncertainty on how successful this will be. We have recognised an impairment charge against goodwill of £0.2m.

Treasury & risk management

Treasury

The Group's treasury function is managed centrally. Under the Group's treasury policy speculative transactions are not permitted and where possible liabilities, typically debt, match the location and currency of the related assets. The following matters are reserved for Board approval:

- 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.

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

Treasury is managed to deal with the following risk areas.

Liquidity and funding risk

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 £52.0m (2015: £36.7m) with the increase mainly coming from the new revolving credit facility. We also increased overdraft and loan facilities overseas, and the UK invoice financing facility increased by £4.0m with ConSol Partners joining the Group and adding their facility. We aim to transfer them to our Group facility during the first half of 2017. The amount of facility undrawn of £15.4m (2015: £15.6m) excludes the headroom on the invoice financing facility, which is available to the UK companies only. At 30 June 2016 we entered into a new £10.0m Revolving Credit Facility with HSBC Bank plc to provide investment funding. There is also a £5.0m accordion which has been agreed in principle by the bank but would need new credit approval for any draw down from this amount.

Reported Group net debt increased to £10.5m at 31 December 2016 (2015: £7.3m). This includes cash held by Rishworth Aviation for pilot bonds, amounts which are repayable to pilots or the client when their contract ends. When calculating our 'debt to debtors' ratio we exclude the cash held as pilot bonds and this net debt level was £15.7m (2015: £7.3m). The 'debt to debtors' ratio has increased to 38%, from 23% last year due to the investment spend.

As part of the new Revolving Credit Facility we need to meet bank covenant tests on a quarterly basis, the first test being for the quarter ended 30 June 2016. All tests have been met during the year. The covenants, and our performance against them, at year end are as follows:

Interest rate 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). The overdraft and invoice financing facilities are used to fund working capital requirements for temporary recruitment businesses. During a downturn there is typically an unwinding of working capital as trade receivables are collected, so reducing the financing requirement and subsequent interest cost.

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 by repatriating surplus funds from around the Group to minimise the use of the overdraft facilities.

Finance costs were £0.7m (2015: £0.6m), which primarily related to interest payable on bank facilities but also included £0.1m for interest on late paid tax. The effective interest rate for bank facilities for the year was 2.6% (2015: 2.8%).

Foreign exchange risk

There was no foreign exchange from trading in the year (2015: gain of £161,000).

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 year we were positively impacted by movements in exchange rates on the translation of Group results, the largest are detailed below:

There are a small number of forward currency contracts in place at IMS and ConSol Partners. The amount covered by these at year end was £0.6m (2015: Nil).

Credit risk

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. This target was fully met throughout the year.

Debtor days are reviewed monthly with high balances followed up with local management. Average debtor days for the Group in 2016 were 47 (2015: 51), with a year-end balance of 41 (2015: 52 days). These figures were helped by Rishworth Aviation joining the Group as they have low debtor days, with airlines typically paying either in advance or within a short period for pilot salary costs. On a comparative basis, excluding Rishworth Aviation, the year end and average Group debtor days were 52.

The debtor days in UAE remain higher than the Group average. The outstanding debtor balance has reduced, but with the poor economic conditions in the region we have seen a higher level of bad debt write off than normal. As a Group our bad debt expense was £0.6m in the year, up £0.3m on the prior year.

Management equity philosophy, minority interests & investments

Management equity philosophy

A key component of our business model is management equity, where senior management own shares directly in the operating companies they are responsible for.

Where we acquire a majority stake in a business, the shares remaining with the founder are called "first generation shares". There are no material changes to the rights belonging to these first generation shares retained by founder management. Our model also enables management to acquire "second generation shares". This will often be when the first generation shares have been acquired by Empresaria and we want to incentivise the next tier of management in the operating company to grow its business to the next level. Management buy these second generation shares at market value, investing their own cash, which is at risk if the business does not perform. To help lower the market value of the second generation shares (to make it affordable for management to acquire a meaningful stake in the business they are responsible for) and to protect the profit that we have already acquired, we set a 'threshold profit' level for valuing second generation shares. These second generation shares only start creating value for management if the profit grows above the 'threshold profit' level. The second generation shares typically have restrictions, such as a limited or no entitlement to dividends and the fair value paid by the management shareholder reflects these restricted rights.

Non-controlling interestsBased on the results for the year ended 31 December 2016, the total value of all non-controlling interests (shares held by management in the operating companies they are responsible for), if purchased in full in 2017 using the valuation mechanisms in existing shareholders agreements, would total £9.0 million (2015: £3.6 million), ignoring any potential discounts under the shareholders agreements. There is no obligation on the Group to acquire the shares held by management at any time.

In some situations the consideration payable under the shareholders agreement for second generation equity may be greater than the fair value of the shares under IFRS 13, where there are restrictions over the rights of the shares, typically over dividends. The valuation mechanism in the shareholders agreements uses an earnings multiple, which does not differentiate between shares with restricted rights and those without restrictions. If the price paid for the shares is in excess of the fair value, this additional amount paid is recognised as a charge in the income statement. These charges are treated as adjusting items when presenting the adjusted operating profit, adjusted profit before tax and adjusted earnings per share.

In June 2016 we increased our shareholding in Monroe Consulting (Thailand) by 10%, taking our interest up to 70%. The consideration of £0.2m was paid in cash, which was charged in the income statement (2015: £Nil). Based on the results for the years ended 31 December 2016, for those shares with restricted rights, the amount payable using the valuation mechanisms in the existing shareholders agreements that is in excess of the fair value, if purchased fully in 2017 would total £2.4 million (2015: £1.3 million), ignoring any potential discounts under the shareholders agreements.

In April 2016 we increased our interest in Ball and Hoolahan (IT & Design sector in the UK) from 75% to 100%, acquiring first generation shares from the founder who left the business as part of a planned transfer of ownership. The consideration was £0.2m, all paid in cash and accounted for as an increase in our investment.

During the year ended 31 December 2016, management acquired second generation shares in the Headway Group of companies, Pharmaceutical Strategies and Monroe Consulting (Malaysia). These shares all have restricted rights.

Investments and disposals

During the year, the Group made the following investments:

· On 5 July 2016 we invested in 82.6% of the shares in Rishworth Aviation. Total consideration was US$10.0m (£7.5m), paid fully in cash on completion. The remaining 17.4% interest is held by the senior management team in line with our management equity philosophy. Management have entered into our standard shareholders' agreement, with shares expected to be held for a minimum holding period of three to four years before they can be offered for sale, over a minimum of a further two years, with no obligation on Empresaria to acquire them.

· In 6 October 2016 we invested in 65% of the shares in ConSol Partners. Total consideration was £9.5m, with £3.9m paid in cash on completion and a deferred amount of £5.6m payable in the first quarter of 2017. In January 2017 £3.2m was paid in cash and a further £2.4m is expected to be paid before the end of March 2017. Management have entered into our standard shareholders' agreement, with shares expected to be held for a minimum holding period of three to four years before they can be offered for sale, over a minimum of a further two years, with no obligation on Empresaria to acquire them.

A deferred consideration payment of £3.0m was paid in cash in relation to the acquisition of Pharmaceutical Strategies in October 2015. No further payments are expected under this agreement, with a £0.6m release in the year ended 31 December 2016 to reflect our best estimate of the amount payable.

The Group received £0.1m in deferred consideration from disposals made in 2013 of the Bar 2 payroll business and in March 2015 of the GiT business.

Cashflow

Net debt increased by £3.2m in the year to £10.5m (2015: £7.3m). The main areas of expenditure were on business investments, a net £6.4m including cash acquired as part of the investment of £7.9m. This includes cash held for pilot bonds, which is £5.2m at year end. These bonds are repayable to the pilot or client over the period of the pilot contract and a corresponding liability is recognised on the balance sheet. There was also capital expenditure on fixed assets of £0.8m, dividends to shareholders of £0.5m, with a net £1.2m working capital inflow. Tax payments were £4.7m, significantly up on the prior year, through a combination of increasing profits and the conclusion of a tax audit requiring an additional tax payment.

Post balance sheet events

There were no post balance sheet events.

Going concern

The Board has undertaken a recent and thorough review of the Group's budget, forecasts and associated risks and sensitivities. The Group's UK and German overdraft facilities were renewed in February 2017 for a further 12 months. Given the business forecasts and early trading performance, 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.

Joost Kreulen Spencer WrefordChief Executive Officer Group Finance Director

28 February 2017

Consolidated income statement 

Consolidated statement of comprehensive income

Consolidated balance sheet

Consolidated statement of changes in equity

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.

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

· "Other reserves" represents the share based payment reserve of £0.8m (2015: £0.6m) and exchange differences on intercompany long-term receivables amounting to (£1.2m) (2015: (£1.2m)) which are treated as a net investment in foreign operations.

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

· "Non-controlling interest" represents equity in a subsidiary not attributable, directly or indirectly, to the group.

Consolidated cash flow statement

1 Basis of preparation and general information

The financial information has been abridged from the audited financial information for the year ended 31 December 2016.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2016 or 2015, but is derived from those accounts. Statutory accounts for 2015 have been delivered to the Registrar of Companies and those for 2016 will be delivered following the Company's Annual General Meeting. The Auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their reports and did not contain statements under s498(2) or (3) Companies Act 2006 or equivalent preceding legislation.

Accounting policies have been consistently applied throughout 2015 and 2016.

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 2017.

2 Segment analysis

Information reported to the Group's Chief Executive who is considered to be Chief operating decision maker of the Group for the purpose of resource allocation and assessment of segment performance is based on geographic region. The Group's business is segmented into four regions, UK, Continental Europe, Asia Pacific and the Americas.

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

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

* Adjusted operating profit is stated before exceptional items, gain or loss on business disposal, intangible amortisation and fair value on acquisition of non-controlling shares.

Revenue of Continental Europe includes £78.2 million (2015: £71.4 million) from Germany and revenue of Asia Pacific includes £43.3 million (2015: Nil) from New Zealand.

Following the investments made in Rishworth Aviation and ConSol Partners, the segmentation of the Group's revenue and gross profit by geographic region and destination was different during the year ended 31 December 2016.

The analysis of the Group's revenue and gross profit by client destination is set out below:

During the year ended 31 December 2015 there is no material difference between the segmentation of the Group's revenue and gross profit by geographic origin and destination. The analysis of the Group's business by geographic origin is set out below:

3 Business investment

On 5 July 2016 the Group purchased an 82.6% interest in Rishworth Aviation Limited and its sister companies (together "Rishworth") for a total cash consideration of £7.5 million. Headquartered in Auckland, New Zealand, with a regional office in Stockholm, Sweden, Rishworth is a leading independent staffing company supplying pilots to the aviation industry. Rishworth provides staffing services to clients across the globe, with a significant presence across the UK, Continental Europe, Asia Pacific and Africa.

On 5 October 2016 the Group purchased 65% of the shares in ConSol Partners (Holdings) Limited ("ConSol"), a specialist recruitment group in the IT sector with a focus on the niche sectors of communications and mobile, cloud technologies and the digital supply chain, operating in the United Kingdom, the United States and Continental Europe. Total consideration for the acquisition is £9.5 million with £3.9 million paid on completion and £5.6 million payable during the first quarter of 2017.

The amounts recognised in respect of both the acquisition for the purchase consideration, identifiable assets acquired and liabilities assumed and goodwill are as set out in the table below:

(1) The above table represents fair value on date of investment.

Rishworth Aviation

Acquisition related costs amounting to £0.1 million are not included above and have been recognised in the income statement.

The goodwill comprises the value of its employees and their close understanding of their client's requirements which are of great importance in the recruitment business. The subsidiaries of Rishworth are run as one operating unit and represent a single cash generating unit for goodwill allocation.

Goodwill and intangibles are not deductible for tax purposes.

There are no post-combination employee services identified from this acquisition.

The investment has contributed £43.3 million to the Group's revenue and £0.4 million to profits attributed to equity holders of the parent. This includes intangible amortisation impact of £0.1 million to profits attributable to the equity holders of the parent. It has contributed £1.8 million to the Group's operating cash flow since acquisition for the period ended 31 December 2016.

If the investment had been completed on 1 January 2016 the Group would have generated additional revenues of £46.3 million for the period to 31 December 2016. The profit attributed to equity holders of the parent for the period would have been an additional £0.3 million. This includes intangible amortisation impact of £0.2 million to profits attributed to equity holders of the parent.

ConSol Partners

Acquisition related costs amounting to £0.2 million are not included above and have been recognised in the income statement.

The goodwill comprises the value of its employees and their close understanding of their client's requirements which are of great importance in the recruitment business. The subsidiaries of ConSol Partners are run as one operating unit and represent a single cash generating unit for goodwill allocation.

Goodwill and intangibles are not deductible for tax purposes.

There are no post-combination employee services identified from this acquisition.

The investment has contributed £6.7 million to the Group's revenue and £nil to profits attributed to equity holders of the parent. This includes intangible amortisation impact of £0.1 million to profits attributable to the equity holders of the parent. It has contributed £0.5 million to the Group's operating cash flow since acquisition for the period ended 31 December 2016.

If the investment had been completed on 1 January 2016 the Group would have generated additional revenues of £19.7 million for the period to 31 December 2016. The profit attributed to equity holders of the parent for the period would have been an additional £0.6 million. This includes intangible amortisation impact of £0.2 million to profits attributed to equity holders of the parent.

Deferred consideration

An amount of £5.6 million deferred consideration is payable during the first quarter of 2017 and has been accrued at 31 December 2016. This includes £1.4 million payable based upon the net assets at completion.

4 Exceptional items and fair value on acquisition of non-controlling shares

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.

Fair value on acquisition of non-controlling shares

During the year we increased our shareholding in Monroe Consulting (Executive search in Thailand) by 10%, taking our interest up to 70%. The consideration of £0.2 million was paid in cash. In line with accounting rules, where certain restrictions are in place for the management shares, the value of the consideration can be excess of fair value under IFRS 13, and as such a £0.2 million fair value charge has been recognised in the income statement.

5 Finance income and cost

6 Taxation

7 Reconciliation of Adjusted profit before tax to Profit before tax

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:

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

9 Goodwill

Goodwill arising on business combinations is reviewed and tested for impairment on an annual basis or more frequently if there is indication that goodwill might be impaired. Goodwill has been tested for impairment by comparing the carrying amount of each cash-generating unit (CGU) at lowest level of cash flow, including goodwill, with the recoverable amount of that income-generating unit. The recoverable amounts of the CGUs are determined from value-in-use calculations.

The key assumptions for the value-in-use calculations are as follows:

Operating profit & pre-tax cash flows

The operating profit & pre-tax cash flow is based on the latest one-year forecasts for the CGUs approved by the Group's Management Board which are compiled using expectations of fee growth, consultant productivity and operating costs. The Group prepares cash flow forecasts derived from the most recent financial forecasts approved by management and extrapolates cash flows in perpetuity based on the long-term growth rates using margins that are consistent with the business plan approved by the Group's Management Board.

Discount rates

The pre-tax, country specific rate used to discount the forecast cash flows ranges from 10% to 20% (2015: 13% to 21%) reflecting current local market assessments of the time value of money and the risks specific to the relevant CGUs. These discount rates reflect estimated industry weighted average cost of capital in each market.

Pre-tax discount rates used for various cash generating units in operating segments are as follows:

Growth rates

Growth rates used to extrapolate beyond the most recent forecasts and to determine terminal values are based upon the long term average GDP growth forecast, which are consistent with external sources, for the relevant country. Growth rates range from 1.8% to 7.9%. Any growth rate in excess of 3.0% was capped for the purpose of this calculation. GDP growth is a key driver of our business, and is therefore a key consideration in developing long-term forecasts.

Growth rates used for various cash generating units in operating segments are as follows:

Impairment reviews were performed at the year-end by comparing the carrying value of goodwill with the recoverable amount of the CGUs to which goodwill has been allocated. An impairment charge of £0.5 million related to Asia Pacific region has been provided at 31 December 2016.

As part of the impairment review, management has considered the sensitivity of the recoverable amount for each unit to changes in the growth rates and discount rate. This sensitivity analysis showed that the long-term growth rate could reduce to nil without giving rise to any additional impairment of goodwill. The discount rates were also increased by adding an additional 3% to the in country specific pre-tax discount rates. None of these changes in the key assumptions are expected to reasonably occur.

Goodwill acquired in a business combination is allocated, at acquisition, to the groups of CGUs that are expected to benefit from that business combination. The carrying amount of goodwill has been allocated as follows:

10 Borrowings

During the year a new five year UK multi-currency revolving credit facility of £10.0 million was entered into expiring in June 2021. This facility has part-funded the investments in Rishworth Aviation and ConSol Partners. As at 31 December 2016 the balance outstanding was £8.5 million. Interest is payable at 1.5% plus LIBOR or EURIBOR.

At 31 December 2016 the UK term loan, expiring in 2018, had a balance of £3.5 million (2015: £1.6 million). Further drawdowns from this term loan of £2.9 million were made during the year to part fund the investment in Rishworth Aviation and also fund the contingent consideration payment due for Pharmaceutical Strategies. £1.0 million of this loan was repaid during the year and £1.5 million is expected to be repaid during the year ended 31 December 2017. Interest is payable at 1.5% above UK base rate. A German bank loan of €5.0 million (2015: €5.0 million) remains outstanding with an expiry in 2018. Interest is payable at EURIBOR plus 3%.

Overdraft facilities are in place in the UK with a limit of £5.0 million (2015: £5.5 million). The balance at 31 December 2016 was £0.9 million (2015: £nil). The interest rate was fixed during the year at 1.0% above applicable currency base rates. A $1.5 million overdraft facility to provide working capital funding to Pharmaceutical Strategies had a balance of $0.7 million (2015: $1.1 million) as at 31 December 2016. Interest on this USD facility is payable at 2% over currency base rates. An €8.0 million overdraft facility is also in place in Germany. The balance at 31 December 2016 was €1.2 million (2015: €2.2 million). Interest is payable at EURIBOR plus 2.3%.

The UK facilities are secured by a first fixed charge over all book and other debts given by the Company and certain of its UK subsidiaries, Headway in Germany and Rishworth Aviation in New Zealand.

Other overseas overdrafts and loans had interest rates of between 1.6% and 2.3%.

Cash and cash equivalents at 31 December 2016 include cash with banks of £329,000 (2015: £43,000) held by a subsidiary in China which is subject to currency exchange restrictions.

The cash and cash equivalents above includes £5.2 million (2015: £Nil) of pilot bonds held by Rishworth Aviation. See note 12 for more details.

The pilot bonds represent unrestricted funds held by Rishworth Aviation that are repayable to the pilot over the course of the contract, which typically last between three and five years. If the pilot terminates their contract early, the outstanding bond is payable to the client. For this reason the full bond value is shown as a current liability. If the bonds are repaid in line with existing contracts, £3.3 million would be repayable in more than one year.

13 Dividends

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.