Empresaria Group (LSE:EMR) — Full Year Results

0:01 Good morning, and welcome to the EMPRESARIA GROUP PLC for your results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and they can be submitted at any time using the q and a tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company can review all questions submitted today and publish responses, which is appropriate to do so. Before we begin, I would like to submit the following poll.

0:33 And I would now like to hand you over to CEO, Rona Driggs. Good morning to you. Good morning, and thank you for joining us for our 2024 full year results. The financial overview for the year, as as many of you are aware, challenging market conditions persisted throughout the year. Our net fee income reduced by 6% constant currency, excluding operations that we exited. Current placement saw the greatest impact and down 21%. Temporary and contract revenue was net fee income, apologies, was more resilient, up 2% for the year, and offshore services was down 6%, reflecting the wider recruitment market environment.

1:29 Adjusted operating profit was down 21% constant currency with reported figure down 25% to 3,800,000, reflecting the impact of the reduction in net fee income. Our adjusted profit before tax down 37% to $2,200,000 and adjusted diluted loss per share of 1P reflecting the reduction in profits and the allocation of earnings to noncontrolling interests.

1:59 Our net debt increased to 15,300,000 with headroom of 4,100,000, and Tim will go through a bit more of that in the financial review.

2:13 The operating review for the year, we continue to deliver on our strategic initiatives. We did complete the exit of individual operations in Finland, China, Japan, Australia, and in The UK in our small property and construction business. We are starting to deliver benefits from our streamlined management structure and alignment of operations under a single leader in each country. For example, in Germany, we are now aligned under a single leader for the multiple businesses we have in Germany, and in our core sector operations in The UK, and as a reminder, we were already aligned under a single leader in The US. We've seen a notable shift from transactional to relationship based selling, which is really important in a market where we are trying to get existing market share as opposed to a lot of new order volume.

3:07 And we've made continued progress on technology with full adoption and implementation of an analytics tool now embedded across the group. I will now turn it over to Tim to talk about the financial review. Thanks, Rana. Rana's talked through most of the the items on this this slide, but just to to reemphasize that we've included a a constant currency like for like measure here, and that's excluding the operations that we existed exited in both 2023 and 2024. Revenue, as you can see, was down 2%, but up 5%, on the on the constant currency like for like basis. That reflects that relative strength in, temporary contracts that I mention, particularly in some of the lower margin temporary contracts in in our commercial sector.

3:59 So the only thing to highlight is I'll talk about the adjusted operating profit by region in a second. Central costs were up slightly year on year. This really reflects some credits that we had in 2023. For example, in share based payments, had a $300,000 credit in 2023 with a $100,000 charge in 2024. Just moving on to our net debt positions. Our net debt has increased during the year, pounds 15,300,000. That reflects the trading, but also the impact of the exceptional bad debt we had in H1 last year. Our average month end net debt has therefore increased from just under 8,000,000 in 2023 to 12,100,000 in 2024. Mhmm. Our headroom has reduced, 4,100,000, partly reflecting that increase in net debt, but also we did see reductions in the number of facilities during 2024.

4:49 This was partly smaller facilities that we we haven't used in a long time, so we know that we those were those were taken off. And then also we were able to put a significant reduction in our Germany facility after implementing cash pooling in 2023. So this has made that business much more efficient from an interest perspective, but meant that they didn't need the larger facility that they had in place before. As well as this headroom, we do have significant cash, in some of the overseas entities in the groups, such as in India, which could be accessed if we needed it, although sometimes that could come as a, withholding tax cost. Net fee net finance costs remain unchanged on the prior year. So despite that net debt, so we have been, you know, increasingly efficient with how we're managing cash and trying to keep the interest figure as low as possible.

5:40 Subsequent to the balance sheet date, we have extended our 15,000,000 RCF, certainly by a further six months to September 2026. And as part of that, we've agreed an easing of the covenants for the remaining life of that facility.

5:59 Moving on to, the review by region. So in, UK and Europe, within that UK saw NFI by 9% driven primarily by permanent placements, which reduced by 16%. Temporary contract was relatively resilient. We were forward just 2% in net fee income. IT and professional was was primarily the driver of this with with demand that continued for through the year. Our private household and corporate hospitality business did have a strong year, and that was that was up year on year. In Germany, results were fairly solid, so there was a 1% increase in net fee income, and that was converted to a 12% increase in profits, reflecting a more efficient cost base off the back of aligning all our businesses under a single leader at the start of 2024.

6:51 And in the year, we did sell our loss making operation in Finland, which is a small health care business, and we also sold our small UK operation focused on the new homes market.

7:09 In APAC, the overall, net income declined more steeply in this region than in others, so we were down 13% on a constant currency like for like basis. The the market challenges we've seen across the group in the last couple of years and across the sector had a greater impact in 2024, having had a a relatively modest impact in 2023. So, really, this this region was was catching up in terms of those market challenges. IT has continued to be the most, challenged area. This year, we saw a particularly big reduction in Japan where net fee comes down by 25%. Our Japan business is 100% focused on IT. Aviation, which is as our aviation business has been generating fairly significant losses in the last few years, we did see some good progress with net fee income increasing and a very significant reduction in losses, although it does still generate a small loss.

8:05 We also closed two small operations, so fresh operations in China and Australia, and we sold our small commercial operation in Japan. Moving on to The Americas, so relatively sort of strong performance across this region as a whole. So revenue did increase year on year by 23% constant currency like for like, and, net fee income was up 5% in constant currency. US has remained challenging for the IT sector, and net fee income did reduce. However, the cost actions that we've been doing in that business meant that, our losses significantly reduced year on year. And, health care, we started to see some improvements in the second half after a after a weaker first half and a weak 2023, delivering both NFI and profit growth, and we see a much more positive outlook there than than we had done before.

9:01 In South America, Chile grew strongly with net fee income up 9% and profits up 23%. Moving on to offshore services. Net fee income did reduce for the first time in a number of years here, so we were down 6% in constant currency. That's the first decline we've seen since 2020. This is a business that grew in 2023 despite the wider market challenges in the sector. However, in 2024, we did see an impact from, UK health care in particular, which meant our total UK billable billable seats fell 6% in the year.

9:45 We do see still some pressure on see some pressure on NHS agency spend, and that that is expected to continue, but we feel that that is is is at least stabilizing. US demand, which have been, challenged for a couple of years, was still flat during the first half of year, but we did see some increases in the second half. So actually, billable seats closed the year up 8%, for The US. So we have been continuing to invest in in our sales team, and what we see historically is that as the the staffing market recovers, that can be a catalyst for more rapid growth in our offshore services businesses. When clients need to you know, in just where they want to look to add resource to meet demand, they can do that much more quickly with an offshore service and with lower risk. So that does tend to push them more in our direction when the market recovers. So we we're looking to capitalize on that as and when the opportunity exists. So that's why we continue to invest in our sales team and our marketing efforts there.

10:43 It's back over to Ron. Alright. Thank you, Tim. As we announced in February, we are taking steps to accelerate our strategy. We remain committed to our three key pillars for growth, which were focused on our core sectors of IT, professional, and healthcare, diversifying our service offerings to clients, and continued growth in our offshore services business. Our acceleration does refine pillar one to focus on specific markets in The US and The UK, creating a streamlined group. This is really important as we continue to look at the two, The US and The UK being two of the largest staffing markets in the world. UK currently focused on IT and professional, and in The US, we are IT professional in health care.

11:37 And of course, offshore services remains critical to our ongoing focus. Our plan is to complete the exit from all other operations in the next two years to deliver sales proceeds that are expected to eliminate the group's net debt and provide a significant reduction in the central overheads once exits are complete.

12:07 As I mentioned, The UK and The US are two of the largest staffing markets and provide significant opportunity for us in in the future. Our operations have a strong presence with all three core sectors represented in The US and two in The UK with the potential to expand in the future into healthcare and in The UK. We have a proven track record. Although we've been significantly impacted by market conditions the last two years and have underperformed, we strongly believe in our ability to really more effectively derive our operations and investment in those markets through the exit of the other markets that we're in currently today.

12:50 We have already aligned management structures with a single leader in each market. Again, a more focused group will enable us to rebuild the profits more quickly and scale our operations more effectively through investment in technology, strengthening our training, and we've just launched a training initiative right now for The US and The UK, and that is starting this month. Investing in a single go to market brand, which I think will be game changing when it comes to our clients and the ease of buying with our clients going forward,

13:25 continuing to grow our service offerings to clients, for example, RPO, expanding and leveraging the the success we've already had in RPO, and expanding our temp offering in The US. Specifically too, as well to note, we have started to make some significant traction in growing our MSP delivery in The UK, and we will continue to focus on that area as MSPs are continuing to become much more prominent in The UK market. We will also look at appropriate time to accelerate growth through inorganic means as well.

14:15 Offshore services, we remain extremely confident in our offshore services operation and its value to the group. It is a key differentiator from our peers, and maximizing the value of this operation is one of our key pillars. Priorities for 2025 include a continued investment in our sales team to drive accelerated growth as when the staffing market recovers. And again, as Tim mentioned earlier, historically, market recover market recovery has been a trigger for accelerated

14:48 growth in the offshore services space. We are also expanding our back office client base, and have been really focused on driving sales in that area. Our services can be used by sectors outside of the recruitment area, which primarily today, we service the recruitment sector largely, but we are looking to reduce our reliance on a single client sector moving forward in the future.

15:16 We're continuing to identify and develop additional service offerings as well to drive sales with our existing client base, and we've made some traction in both offering marketing services to clients as well as some limited IT offshore services. Delivering value from our noncore, those are expected to be sold over the next two years to generate significant sales value from those businesses. These operations did contribute 4,500,000 to the group's adjusted operating profit in 2024, so we do see some real value in these operations.

16:00 We have approximately 12 operations to be sold. The vast majority were profitable in 2024, and to note that there were many operations that are also well, we have a few that will probably be later on in the in the cycle of sale as they recover, many of these businesses, or several of these businesses, specifically in commercial, and some of the businesses in Asia are ahead of pre COVID numbers, so we do feel like we will be very successful in selling those operations. And flexibility on sales timing will help ensure that we get the best value for those operations. In summary, while 2024 was a difficult year for the market, for the wider recruitment market, we we have relatively solid performance in what was, again, a tough market.

17:05 We don't see any significant signs of market recover recovery currently, so we're not assuming any significant improvement in 2025. However, we are focused right now on improving performance in the current environment. Our accelerated strategy will drive clear benefits over the next few years. Focusing on core markets in The US and UK will enable us to accelerate our growth and invest appropriately in those markets, continue to drive the value of our differentiating offshore services operation, eliminating net debt from the sales of non core operations, and allow us, at the same time, to significantly reduce central costs. In 2025, we will improve our effectiveness and speed of investment in technology and training in our core sectors, as you can imagine, being in 15 countries rolling out technology and training that is is much more challenged in in trying to find something that works for for every single market we're in. So I think the the effectiveness and speed of what we're able to do in The UK and US specifically will be a huge leverage point for us going forward.

18:23 Launching a single brand in our UK and US operations will allow us to accelerate our cross selling abilities, and really, again, make it easier for us to provide a single face to our clients and our candidates in those markets. We ensure that our US, UK, and offshore services operations are well positioned for market recovery. We feel extremely confident in that today, And we are currently preparing, of course, our noncore operations for sale. And finally, we will improve our financial position through the initial sales of noncore operations with the first significant sale expected in late twenty twenty five.

19:12 I will now take questions or turn it back over. Fantastic. Rana and Tim, thank you very much indeed for your presentation. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the top right corner of your screen. While the company take a few moments to review those questions submitted today, I would like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A can be accessed via investor dashboard. And Ron and Tim, as you can see, we have received a number of questions throughout today's presentation. And if I may now hand back to you and kindly ask you to read out the questions where appropriate to do so, and I'll pick up from you both at the end. Thank you. Yes. So we've a few questions in. So the first one is asking about offshore services and noting that it has fairly high profitability in terms of margins and that that's not that usual in a staffing business. So the question is what is what is driving that?

20:07 And the key answer there is that it is not a staffing business. It is an offshore services business that is supporting the staffing market. Obviously, operating in low cost cost markets, and as a reminder, our offshore businesses do operate in two locations in India as well as a location in The Philippines. So we have a a question here just asking about the bad debt provision that we had in the year and provide more detail on the nature and recovery prospects of it. So this was an issue in in in Germany. You know, client's bowels essentially went into, they call it, provisional administration in, Germany. So there's there's very little we can do when when that situation happens. What what we did to you is respond very well in terms of moving workers to other clients or, you know, we ended up negotiating with, our client's clients to, you know, get cash directly from them and continue to service in the short term to help minimize our costs in terms of sort of employment risk that you have have in Germany. And the the recovery prospects are are unfortunately very low.

21:21 We understand that it's so might be we'll get anything material back from that, but we are certainly still engaging with that process and and look and see what we can do on that. So we then got, just a question about The US. How repeatable is The US momentum in twin repeatable is This US momentum in 2025? So guess referring to the the health care we saw. Yes. And I I I do think it's very repeatable. We're very optimistic about our health care business in particular. We we do leverage our offshore services team to deliver into that business, and we've got a a a good solid we're seeing good solid demand in that business right now and good solid delivery.

22:06 I think IT and professional will take a little bit of time depending on how The US market recovers, but I do believe that, you know, in in particular in the health care business, I think we will see see some very good momentum this year in 2025. Okay. And then another question is how confident are we in achieving meaningful deleveraging in 2025? I think I would be a little bit cautious about just on the timeline because, clearly, with a number of disposals to work through, some of them are larger, some of them are smaller, and, of course, we're looking to maximize, the benefit we get. So although we do, expect to complete some disposals this year, and we do we do certainly expect that that would include one or two of the most significant ones, we're still, you know, a little bit cautious on the timeline because, of course, if we run a process and we find maybe the mark isn't quite right in that area for us to get the best value, then then then we'll want to, you know, pause that slightly and and make sure we are we are getting proper value for for shareholders. So, yeah, we do expect to see some deleveraging this year. I think, exactly what level we see will depend on, you know, which disposals we're able to get get across the line, in in that period.

23:28 And then another question about question about AI. So what role do we anticipate for I AI in our business to reduce costs? I think that question is probably best answered by saying that I think certainly AI is helping us, and the technology that we have been deploying across the group over the last several years has been helping us to create efficiencies in our business. But what it is more likely to do is enable us to provide more more service to our clients and reduce those administrative tasks. So it's not necessarily a reduction in headcount that we're going to see as opposed to a greater impact in our ability to do more client facing activities and and reducing our administrative.

24:17 I'm not sure if you have anything else you wanna add to that, Tim. Yeah. And I guess what I would add is that, you know, we work with a number of technology suppliers. You know, we we partner with them very closely on on on these sorts of elements such as such as AI. So we're we're we're seeing it come through in in the in the software we're using, in the in the software we're implementing, and and it's gonna be an important part of of how we operate going forward. But I I would agree with Rob, it's not really about reducing costs as such. It's about, you know, maybe improving productivity to understand, but also improving the service, improving the quality of what we're delivering to to clients. And then there's just a question on Offshore noting that revenue was constant and so asking what drove the reduction of margin within Offshore Services.

25:06 The revenue in Offshore this year did include some payroll services that we were being provided, for clients in India. Often, actually, they're clients of of other parts of the group. So the revenue line, has some low margin payroll bits. That's part of part of the reason. But also, yeah, we're in a a tough market. Clients are looking to hold costs. They're negotiating harder on fees. But, of course, our cost base, which within net fee income includes the cost of of our staff that are providing that service, that that cost base has clearly continued to increase. So that's also the other reason, why we have seen a bit of a dip in margin, in 2024. And then I think that is everything.

25:52 That's great, Tim. Rona, thank you for addressing those questions for investors today. And of course, the company can review all questions submitted today. I will publish those responses in the investor meet company platform. But Rona, before we redirect investors to provide you with their feedback, which I know is particularly important to the company, could I please ask you for a few closing comments? Sure. Thank you so much. I would like to close by saying that we are absolutely confident in the actions that we've already taken and specific specifically the actions that we took in 2024. And with our more targeted strategy, we are confident that it will enable us to drive faster growth in our chosen sectors and markets, while at the same time strengthening our financial position and enhancing shareholder value. I would like to thank everyone for taking their time to listen in today and appreciate your continued support.

26:49 Fantastic. Rona, Tim, thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations? This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of management team of EMPRESARIA GROUP PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.