Empresaria Group (LSE:EMR) — Full Year Results Webinar

0:01 Good afternoon, ladies and gentlemen. Welcome to the EMPRESARIA GROUP PLC Full Year Results Investor Presentation. Throughout the presentation, investors are being in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Simply type in your question and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your investor me company dashboard, and you'll be notified when

0:32 they're ready for your review. I'd also like to remind you this presentation is being recorded. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Ron Hendrix, CEO, and Tim Anson, CFO of EMPRESARIA GROUP PLC. Good afternoon. Hello, everyone, and thank you for joining us today for our 2021 or 2020 full year results and our 2021 overview on our priorities. So today, we're going to be covering an overview of the 2020 financial year along with our financials, sector analysis, and our outlook for 2021.

1:15 For those of you who are not familiar with the group, we are a very diversified global staffing group operating in six sectors across 20 countries and placing in many more than that. We have diversity of locations and services have not only proven in the past to reduce impact from localized market issues, but has also proven to be beneficial navigating the COVID pandemic. One thing to note is 75% of our net fee income does come from outside of The US, and we continue to grow our strength in our offshore recruitment services business. A few key areas to note in on the slide is we have noted the differences between 2019 and 2020 in our slide deck here for your reference.

2:05 We've covered off not only where our skill sets are are broken out into in the different sectors, but also our markets and our services. Our professional sector fell 28% primarily due to the significant decline in our aviation business. IT and health care were fairly resilient, and our permanent NFI dropped to 32 of our overall mix of business due to the impact of COVID nineteen on permanent hiring. As you can see, you know, from this chart, we are and and if you reference one of our strategic initiatives is to really diversify and and grow our temporary and contract business to a 30% split. We've obviously come closer to that this year due to the pandemic, but, of course, that is falsely reflected in the decline in permanent business.

3:00 We operate in three key regions, and if I include we have four regions, but three that we'll talk about overall. We're we're to to speak about Continental Europe and UK as one, Asia Pacific, and then The Americas. So we are well balanced by region and NFI with clear opportunities to grow in key markets like The US.

3:28 One of the things we've been working on in our strategic initiatives is to really simplify our business and really create synergies with like and kind businesses. So if you have been following us for a long time, you will note that we have moved away from really speaking about individual brands and more about the sectors that we operate in. So this slide really shows you a simplified version of of EMPRESARIA now since we've moved into both a sector and a regional structure. And you will see that the orange areas are places where we're physically located, and the light orange areas are places where we we may not have physical locations, but we have sales presence in those markets. An overview on the year, you know, we started 2020 really strong with year on year profit growth in each of the first three months, which were clearly demonstrating the benefits of our stronger together initiatives we launched in 2019.

4:28 The common challenge of COVID nineteen accelerated the unity we had been building in the group. This helped us to adapt adapt and respond quickly and further prove our stronger together initiatives. We accelerated several initiatives in our strategic plan and protected key investments while demonstrating our financial strength throughout 2020. Our ability to successfully navigate COVID nineteen could not have been achieved without the dedication and perseverance of our teams around the globe during a time that was not only difficult professionally, but personally. So our absolute thanks goes out to all of our team for, helping us to have a a solid year. I am pleased with the strategic progress we made in 2020 despite a very challenging operating environment.

5:16 We are well positioned to take advantage of recovery in our markets. With the economic situation stabilizing and having demonstrated our ability to continue to deliver profits in the current environment, we believe the time is right to reinstate our dividend and have proposed a final dividend of 1 p per share for 2020.

5:39 When we look back and and look at the highlights and the financial strength in the face of COVID nineteen, I think the beginning of the year, as I mentioned earlier, we started to realize the benefits of our operational initiatives put in place in 2019. As a result, we delivered year on year increases in operating profit in each of the first three months of 2020. The benefits of our operational initiatives gave us a solid foundation foundation as COVID nineteen started to impact the business. This confidence and belief in what we were doing shaped how we approached the pandemic, and we were determined to capitalize on these benefits and continue to deliver positive change. We were profitable in each of the quarters of the year despite significant impact to net fee income with q two down 39% versus 2019, q three down 38%, and q four down 27.

6:36 When we started to see the impact on net fee income and demand in March, we took swift action on costs across especially in those businesses where net fee income was expected to be hardest hit. These actions included a group wide hiring freeze alongside pay and headcount reductions. We did not take these decisions lightly as we sought to protect our employees and our business at a very uncertain time. We saw positive momentum developing in the final months of 2020. A few examples of that was with our offshore recruitment services business, which returned to pre COVID levels by the end of the year. And our US health care business saw significant demand increase due to vaccination programs. Our h two operating profit was greater than h one despite lower fee net fee income.

7:27 We continued to see clear benefits of our diversification by sector and geography as we had different markets impacted at varying times. And while some were just going into lockdown, others were coming out. Our net debt reduced significantly as a result of working capital inflows, evidencing the resilience of our financial financing model in a downturn. Although we took precautionary action to agree relaxed covenants early on, these actions proved unnecessary and we remained compliant with our original covenants throughout the year. In March, we refinanced our 15,000,000 revolving credit facility for two and a half years.

8:09 Some of the key operating highlights we wanted to talk to on this slide are really, you know, first and foremost, we protected key investments such as our technology initiatives and made additional changes on our technology road additional progress on our technology road map with with the majority of our brands to be implemented within the next eighteen months. In fact, interestingly enough, we were in the middle of an implementation in three of our brands when the pandemic started, and we were able to meet our original go live date early July. We restructured our operations in a number of our businesses, which will provide us greater focus on sales and recruiting while providing more scalable operating models. We continued on our journey to drive greater efficiencies in the group through leveraging of our offshore recruitment services business.

8:58 We accelerated our initiatives to move more of our recruiting and back office functions to a lower cost environment while ensuring we maintained our quality. We restructured and right sized our cost base across several of our businesses to protect our bottom line while positioning us for recovery. We were laser focused on client retention and sales, keeping both client and candidate engagement extremely high. We were determined to take advantage of this time to make the operational changes needed in the business to ensure we come out of the pandemic stronger than we went in. I apologize. There's some background noise here. We made further progress in driving a performance based culture as demonstrated in our 2,020 results.

9:47 We created a sense of accountability not only for results but for collaboration across our regions and our sectors, continually challenging our teams to evolve their businesses while driving our overall strategy with high levels of communication and clarity around our core values.

10:05 This slide highlights our progress against our strategic initiatives. Sorry. Apologize. I am moving faster. This slide highlights our progress against our strategic initiatives, most of which have already been covered. So we will focus on a few of our 2021 priorities. To further accelerate our growth in key markets and sectors, we are investing in our structure to bring in highly experienced leaders for each of our three regions, The UK, Europe, Asia Pac, and The Americas. This structure will enable us to further identify and leverage synergies in our business, including expansion of our high growth sectors, ensure that we are capitalizing on cross selling opportunities, and provide even greater collaboration across businesses in similar markets.

10:54 We are pleased to announce that we have appointed our first regional head of UK in Europe. This is someone I have worked with in the past and has over thirty years of demonstrated success in delivering unique staffing solutions in multiple countries around the world. We expect to make an appointment in Asia Pac next and are currently considering the timing of The Americas role. We are strengthening our leadership structure and have offset most of this cost through management changes that were made in 2020. We are also pleased to announce our recently launched expansion into The Philippines market with our offshore recruitment services business. There's high demand, especially in The US markets, for offshore resources in Asia. And several of our large competitors are operating very successfully in this space. This is another great example of accelerating our strategic initiatives and the successful collaboration we have had across the group.

11:47 We were able to leverage the management experience and location of one of our professional services business in The Philippines to help us launch this market. While we are in the very early stages of servicing clients out of this market, we are optimistic about its potential and our ability to scale this market successfully. Clearly, a priority for us in 2021 is to rebuild our net fee income and profits in the operations that were heavily impacted by COVID nineteen. We are also focused on our strategy to grow our US presence in both our health care and IT sectors, which are high growth sectors in the staffing industry and have proven fairly resilient in the face of COVID nineteen. We are continuing to expand our service offerings to our clients in the areas of outplacement services.

12:34 This is an offering we developed in Asia during the pandemic to target those clients who are making significant reductions in their workforce. Recruitment outsourcing recruitment process outsourcing and statement of work are also growing in demand, are generally much more profitable than traditional staffing. So we are focused on delivering those solutions as well. And lastly, we launched a direct sourcing solution powered by talent communities utilizing our clients' talent pools to deliver talent in The US, which is one of the newest high demand solutions for clients. And matter of fact, the staffing industry analysts, which is our industry body and association, did a recent survey of clients in The US stating that 21% of them already have engaged with this direct sourcing solution and another 52% of clients citing interest in moving to this model over the next two years.

13:30 So we're poised and positioned to take advantage of this new or relatively new service line in the industry.

13:40 We have we have already discussed our technology initiative, which will provide us with common recruitment and sales platform common recruitment and sales platform along with a global database of candidates to leverage across our markets. This is also timely as we embark on the new world of remote work and see continued acceleration of the digitalization and automation of staffing processes, which will play a pivotal role post pandemic. Finally, as mentioned earlier, we refinanced our revolving credit facility in March and we are pleased to restart our dividend. With that, I will turn it over to Tim for the financial review. Thank you, Rona. I'll just talk through some of the high level financials first. So revenue and net fee income for the year were both down by 28% with the sharpest falls in the second and third quarter, but we did start to see some improvement as we move through the fourth quarter.

14:41 Strong cost controls across the group, including centrally, helped to limit the impact on profits. And adjusted operating profit was down 40% to £6,200,000 Adjusted EPS was down to 4.1p per share.

14:59 Our net debt reduced significantly in the year, largely due to the significant working capital inflows we saw in the second quarter. These have started to reverse as we move through the second half and as trading started to improve. We would, of course, as trading improves further, expect to see our net debt levels continue to increase as we move through 2021. Early in the pandemic, we did take precautionary measures, including taking advantage of the opportunity to defer certain tax payments in The UK and elsewhere. Those have largely now been repaid, with the remaining balance of GBP 900,000 to be repaid in the first quarter of twenty twenty one. Additionally, we increased our overdraft by 2,500,000 in April, alongside a relaxation of the principal covenants on our revolving credit facility.

15:50 In the event, actually, we didn't need to to make those changes. We remained compliant with the original covenants throughout the year, and we have demonstrated that we've had significant headroom as well. Headroom at the end of the year is strong. If we see recovery, we we certainly have the headroom and facilities to be able to cope with that even if recovery were to happen more quickly than expected. And as Pranav mentioned, the revolving credit facility of £15,000,000 was refinanced in March with a two point five year maturity. Finance costs in the year are down slightly, reducing partly due to the levels of net debt, offset by some interest on tax liabilities.

16:35 Moving on to the sector analysis. Our professional sector was our hardest hit. We saw some significant declines across revenue, net fee income and adjusted operating profit. This sector has our business that's focused on the aviation industry. Obviously, has been significantly disrupted, and at the moment, it's not expected to recover quickly. We have rightsized the cost base of that business and positioned it for recovery. And we still believe that remains a very good market in the medium to long term, and we are investing in diversifying what we recruit for there. Currently, we're mainly pilots, but we're looking at broadening that base. However, we wouldn't expect that improvement any improvement to happen in 2021, and that will continue to be muted for the year ahead.

17:27 Our professional sector is also very heavily perm weighted, with the exception of aviation actually, which was almost all temporary in contract. And that's another factor for why this sector was particularly hard hit in the year. However, we did take strong action on costs, and that sector still remained profitable despite those significant falls in revenue. IT was one of our more resilient sectors. Japan, in particular, did well with profits in line with 2019, although there was a small fall in net fee income. In The U. S, we did have a strong first half, but we are mainly permanent in The U. S, more than 90% permanent, and we had a more challenging second half to the year. UK, where actually 80% of our business is placing candidates in Europe, did have a more difficult year and net fee income was down 20%.

18:18 We have taken action to restructure that business and refocus the operating model so we can deliver better results going forward in The UK.

18:29 Healthcare was one of our best performing sectors. Initially, we were seeing impact from COVID-nineteen as patients were either unwilling or unable to engage with their doctors or other health care services. However, what we're seeing now towards the end of 2020 and the start of 2021 is strong demand for staff to, you know, for the vaccination services and testing services, particularly in The US. So that has entered 2021 strongly. Temp volumes actually in The US have been very strong, but typically at lower margins, so which is why we see an increase in revenue in the year but a fall in net fee income. Property construction and engineering reflects the closure of our UK engineering business at the end of twenty nineteen. That's the main driver of those falls.

19:19 However, alongside that, one of our businesses supplies sales staff to the new homes industry. And while the construction sector and house builders have actually had a decent 2020, that's all been done online. The show homes, etcetera, have been shut. So our business supply sales staff has been particularly happy hit. However, we do have a very efficient cost base, and we would expect that as demand returns, we should be able to quickly see a return to profitability in this sector.

19:50 In our commercial sector, we've had our logistics business in Germany has had a very strong year, benefiting from significant increased demand from supermarkets, particularly during lockdowns. That has helped offset some of the adverse impacts elsewhere. So in Germany, we are the automotive sector of our key clients. Initially, there were factory closures at the start of the year due to supplies from China. And then moving through the year, they were impacted by lower consumer demand. Elsewhere in LatAm, we've had also seen impacts, although because we are, again, supplying supermarkets, particularly in Chile, that has helped offset some of impacts elsewhere. In Japan, where we are supplying retail staff, we've seen a significant impact from the Tokyo lockdowns, but we did see an improvement in the second half as those ended.

20:45 In offshore recruitment services, we did see a significant fall in demand in the second quarter as clients pass on the impact they were seeing on their own business. However, we have seen a very strong recovery in the second half of the year, and this business is now back to pre COVID levels. This is our biggest headcount in the group. We have 1,000 people in India, and they responded very well to the lockdown situation. We managed to move 1,000 staff to remote working in a space of seventy two hours while continuing to service clients effectively. And actually, in the remote working environment, we have seen improvements in productivity. And I'll pass it back over to Rona for the outlook. Thank you, Tim. We are we are seeing a two speed recovery right now. Sectors that either have adapted to working in a COVID nineteen environment and those which have not or cannot, including travel, aviation services, and hospitality.

21:46 Our top priority remains the continued safety and well-being of our employees and candidates as ensure we are continuing to help our clients navigate the pandemic. We remain cautious on the speed of recovery given the assumptions about the success of the vaccination rollout. However, we believe our diversification by both sector and geography will continue to prove beneficial as markets and sectors will recover at different paces. While we cannot control how COVID nineteen will continue to impact us and our clients around the world, we are cautiously optimistic and focused on what we can control, how we respond to each challenge, how we grow our market share with our clients, and how we best position ourselves for market recovery. I am confident that we're starting 2021 well positioned to exit the pandemic stronger than we entered it and to take advantage of recovery in our markets.

22:38 Thank you so much for your time today and your continued support, and we'll now open turn it back over to open it up for questions. And the operator for questions submitted already, I'd like to remind you that the recording of the presentation, along with a copy of the slides and the published q and a, can be accessed via your investor dashboard on the Investor Meet company platform. I'd also like to remind you that your feedback is important to the company. And immediately after the presentation has ended, you'll be redirected for the opportunity to provide your feedback in order the company can better understand your views and expectations. Ron and Tim, we've we've had a couple of questions that we've seen come through so far. So perhaps if I could just direct you back to that q and a tab, and if I could just ask you to read the question where appropriate to do so and give you a response, that'd be fantastic.

23:36 I see a question that's come in regarding what topics caused the most heated discussion in the boardroom at the moment. And I I think what I will say is that we have a very experienced board who who have been through a significant economic downturn. Certainly nothing like this, of course, but we we really have.

23:57 I don't think there's any heated discussions in regards to our our current executive leadership team right now. I think we're all in clear alignment and and have been lockstep this this entire time navigating through the pandemic and have had, quite frankly, received really positive support from the board and and very responsive to the actions that we needed to take early on.

24:31 Fantastic. Thanks, Rona. I don't know if if we we're just seeing what looks like an advance just popped in. If you could share a little scan through that list, that'd that'd be be great. Great. Yeah. There's there's there's a question about, you know, the fact we take quite a lot of cost base out of the business and whether, you know, how that means we'll cope with the recovery with that. I mean, yes, we did we did take a lot of cost down the business. But at the same time, we were making sure we were protecting our investments moving forward, whether that was in investments in technology or actually also investments in people. I mean, although we've we've had to cut headcounts, there's clearly a lot of people on the market. So there's still an opportunity for businesses that are doing well to keep an eye out for a good quality staff and potentially improve the quality of, you know, the the people they have in the business. One thing we we did maintain actually during 2020 was our staff productivity, which we we define as,

25:25 net fee income divided by staff cost, and that that was in line with the previous year. So we've we've, you know, we don't feel we've taken out too much. And what we'd love to see is that that productivity increases as we move forward, reflecting a lot of the operational initiatives done, the investments in technology, etcetera.

25:50 Fantastic. Thank you very much, Tim. Just if any further questions do pop through, we'll get get those to to review, but I know you have addressed those that we've got through so far. Of course, the company will review any further questions that are sub submitted. Rhonda, perhaps I could just hand back to you just for for a a final few words and on that basis just to to wrap up where we are, and that'd be great. Yes. Thank you. Thank you so much, and thank you for for your questions and your interest today and for joining us. I am, really, you know, pleased to to have come out of, last year in the position that we are currently, not only with maintaining our profitability, but, of course, being being I feel well positioned to and excited for the future and our recovery in our markets.

26:38 We, again, are are optimistic cautiously optimistic that we will we will continue to drive forward on the initiatives, the strategic initiatives, and and increase our level of profitability and net fee income as we move throughout the year. I think it's important to note as well that we we are projecting the half one profits to be less this year than prior year, and that's largely due to and I think Tim may have mentioned this, our our strong start to the beginning of the year last year. But we are generally heavily weighted in half two, so we, you know, we will see, potentially a, exaggerated, uplift in the second half of twenty twenty one.

27:30 Tim, do you have any any last comments on the financials? No. I think we've I think we've covered everything. Okay. Well, again, thank you so much for your time, for your support, and joining us today, and look forward to updating you as we progress through the year. Alright, Tim. Thank you very much indeed for updating investors today. Could I please ask investors not to close this session as you will be automatically redirected for the opportunity to provide your feedback? If you've accessed the meeting from our website, the feedback page will appear at but if you've accessed the meeting via the link sent in the email, we'll be simply asked just to log back in. If you wouldn't mind just taking a few seconds to do so, your feedback will be greatly appreciated by the company.

28:15 On behalf of the management team of EMPRESARIA GROUP PLC, we'd like to thank you for attending today's presentation. That concludes today's session. Thank you very much, and good afternoon. Hi.