Empresaria Group (LSE:EMR) — Interim Results Webinar

0:02 Good afternoon, and welcome to the EMPRESARIA GROUP PLC interim 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 where it is appropriate to do so. Before we begin, I would like to submit the following poll.

0:32 And I would now like to hand you over to CEO, Ronnie Driggs. Good afternoon to you. Good afternoon, and thank you very much for joining us today. So we're we're gonna start with the financial overview today. Challenging market conditions continued throughout the first half of twenty twenty four, which did impact net fee income. On a constant currency like for like basis, the group reduced by 9% to 25,300,000. Permanent placement was down 21%. Temporary contract was down 1%, and offshore services were down 10.

1:18 Adjusted operating profit was down 8%, constant currency like for like with reported figure down 23% to 1,000,000, reflecting the impact of a reduction in net fee income offset by the ongoing benefits of cost actions, which delivered year on year cost reductions of 2,300,000. Adjusted diluted loss per share of 1 0.2 p reflecting the reduction in profits and the allocation of earnings to non controlling interests. And our adjusted net debt increased to 13,500,000 with headroom of 10,500,000.

1:59 The industry wide weakness in demand that we experienced in late twenty twenty two and throughout 2023 has continued through the first half of twenty twenty four. Permanent continues to be the hardest hit. Temporary has been more resilient with pockets of growth, particularly in our commercial sector. Offshore services is feeling the impact of the wider market off the back of a record year last year. The wider IT market continues to be challenging across all our regions. We've continued to maintain tight control of our costs while protecting our core consultant base to ensure we are positioned for recovery. We've also continued to execute on our strategic objectives. As announced in March, we have completed exits from our Finland health care business and in China, a close recently closed our China operation in Path 1 with two more expected in the second half of this year.

2:58 We have streamlined our management structures to strengthen our cross selling capabilities and further reduce complexity and moved our core operations of IT, professional, and health care into a highly scalable model

3:11 with dedicated sales and delivery teams. And finally, we rolled out additional enhancements to our front office technology platform specifically targeted at improving productivity. And now I will turn it over to Tim to go through the financial highlights. Thanks, Rona. Rona's covered most of the slides. Just pull out a few extra little bits. You can see here that revenue on a constant currency like for like basis did increase by 4%, and that reflects that resilience in our temporary and contract business and, in particular, some more positive results in our lower margin, higher volume temporary contract businesses. Our overdrafts, as Ron said, down 2,300,000 constant currency like for like, reflecting that benefit of those cost actions in 2023, and that is what has driven, yeah, the the operating profit to drop by just 8%, 300,000 despite that forward net fee income.

4:07 Loss per share does reflect an allocation of earnings to noncontrolling interest. Our central costs are down, 13%, year on year as well. So moving on to adjusted net debt. Adjusted net debt position has increased at the half year versus December, and that's really driven by the impact of an exceptional bad debt expense that we had in Germany, which at the half year is essentially a full 3,000,000 impact for the for the outstanding, trade debtors position at that point. Our average net debt for the first half was 10,900,000. That compares to 7,900,000 last year. And despite that increase in net debt, we managed to hold net finance costs at the same level as previous year. This reflects some improvements we've made in in terms of cash efficiency. And and by that, I mean that we're, you know, we're we're getting better at offsetting our cash positions against our our debt positions in various jurisdictions.

5:05 Because we're in so many countries, we do have a cash position in a lot of those that don't have local facilities, this can create some inefficiencies, but we've improved our processes to offset to that as much as possible. Headroom remains strong, 10,500,000. That is lower than what we had at December, but that's because those cash efficiency actions have enabled us to reduce some of our certainty levels. And therefore, we still got strong headroom and certainly sufficient to cope with any requirements we have, at the moment. Just moving on to, an overview of the group, and you can see that, you know, the the the proportions in certain buckets have changed a bit year on year. So looking at it by region, UK and Europe has increased as a proportion of the group reflecting that relative strength in commercial.

5:53 APAC and Americas, you know, have reduced, whereas offshore has stayed poorly level. Looking at it by service, our temp to perm ratio has increased to 68% to 32, so that's excluding offshore. That reflects really the reduction in perm and also the resilience temporary contracts. I mean, we do target having a seventy thirty ratio, but the the the driver here really has been that drop in perm rather than growth in in temporary contracts. And then looking at by sector, you can see that commercial has increased as a proportion of the group reflecting the stronger performance there. IT is reduced, and and other things have have remained broadly broadly stable. Moving on to the regions. In UK and Europe, overall, net fee income was down 5% on a constant currency like for like basis. Within that, The UK fell by 9%, so that was in line with the the wider group.

6:48 Again, the the the passing of permits being most significantly hit has been reflected here and is really driven by perm, particularly in our IT and professional businesses. Our temporary contract has been more resilient, and we've seen some positive indications in certain places, but it remains a challenging market in The UK. Germany and Austria results were solid. Our logistics businesses performed very strongly, and that offset some drops in other operations in those countries. So overall, fee income was in line with prior year. And, as Ron mentioned, we exited our health care operation in Finland, so those results are excluded from the like for like measures. Moving on to APAC, we did see a significant drop in net fee income of 25% here. However, if you strip out, the effects of currency and we remove our China operation that we closed during the period, net fee income was down 12%.

7:43 And, actually, revenue saw a small increase just reflecting the mix and relative resilience in in temporary contracts.

7:50 IT demand has been the main driver of this fall. The most significant impact has been in Japan. We've also seen reductions in Singapore and Philippines where we also do quite a bit of IT business. Last year, really, we saw IT hit The UK and US as as the biggest amount. This year, APAC sort of caught up, in that respect, and and so we've seen a a a more significant year on year drop in this region. We have seen some good progress in in aviation with net fee income increasing by more than 20%, and that really reflects our success in diversing diversifying our revenue into engineering and permanent roles. Historically, we've been 100% doing pilots pilots on a temporary contract basis, so we're seeing some good success there through that diversification.

8:38 And moving on to The Americas, The US has been really been the main driver of results. So their overall net fee income was down 16% on a constant currency like for like basis. The US was down 50%, and IT, in particular, continues to be extremely challenging. We did start to see some positive momentum in health care as h one progressed, but that was starting from from quite a a low point at the beginning of the year. So that was still down year on year against a stronger comparator, but we are seeing some positive signs as we exit the first half and into the second half. So we're hopeful that that's now moving in a in a good direction. And South America has continued to perform strongly, and we did see growth of 10% in net fee income in constant currency. Currencies have moved against us there, so that's really flat when you look at it in in GBP, but we have seen that underlying growth and profits did also grow in South America as well.

9:33 Turning to offshore. Offshore service had a record year last year, and that was really driven by our UK health care business, which despite, US demand softening last year, our health care demand remained strong right towards the end of the year. Unfortunately, that did drop off at the very end of 2023 and at the start of 2024, and that's what has driven 9% drop year on year in constant currency. That has now stabilized. We're not seeing any further drops, and and it's the same with The US. We're we're in a a very stable position. However, we're not yet seeing a significant return to growth either. We haven't lost those different clients, and so we are well positioned. And as their demand returns, you know, we are well positioned to build those seats back up and to build those to identify back up. We are also continuing to push other services that aren't purely driven by the recruitment side. So a back office on accounts and finance, for example, we are still seeing growth there in this period, and that's something that we're continuing to drive going forward.

10:39 And back to you, Anna. So we expect weak hiring trends to remain for the remainder of the year. Therefore, we continue to maintain tight control on costs while protecting our consultant base and making limited investments in sales teams.

10:57 I'm extremely confident that with the progress we've made in reducing the complexity across the group, the operational changes we have made and the continued focus on executing our strategic objectives positions us well for recovery in the market returns.

11:16 And now I'll hand it over for q and a. That's great, Ron 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. Ron and Tim, as you can see, we have received a number of questions throughout today's presentation. And, Ron and Tim, if I may now hand back to you and kindly ask you three other questions where appropriate to do so, and I'll pick up from you both at the end. I'm only seeing one question actually rather than a number at the moment. So the question we've got is is saying given the first half results and the current market conditions, how confident are we in meeting, the full year market expectations?

12:10 So I guess a couple of things on that. Firstly is we are historically quite second half weighted. So particularly in some of our businesses that have performed quite well this year, so those in the commercial sector, they are quite second half weighted because we're we're working with supermarkets as our end clients in a lot of cases. And what we see is that q four period in the run up to Christmas, is is is a very big, profit period. And and then, now we shouldn't get a little bit too technical, but but we also have more bank holidays in the first half of the year in those businesses. And when there's a bank holiday, we have to pay workers, but we don't get revenue. So, again, that pushes our second half results to be as sort of our results to be second half weighted. So there are those factors combined with the actions we've taken on exits and the actions we've taken around cost, etcetera. I mean, we're, yeah, we're we're confident with the markets forecast that are that are out there.

13:10 Next question. I'll take it. Since APAC and Americas have shown significant declines in net fee income, what specific challenges are you facing in these regions, and how are you addressing them differently compared to UK and Europe?

13:22 So first of all, I think the IT market in particular has has impacted both the results in The US and Asia Pac. In Japan, in particular, they've had a very challenged year, and they are 100% IT. And The US has really struggled since the since the Silicon Valley Bank situation about a year and a half ago, I wanna say, now going on into a year and a half. So we're addressing that by, again, continuing to keep ourselves in the market and continuing to drive our sales efforts and looking at diversifying. In particular, in The US, we were heavily weighted in in start ups in the you know, fast forward or going back, sorry, a a year and a half year and a half ago.

14:16 And now we have diversified our revenue base much more. We're also on the on the heels of winning some new business through some MSP providers in The US, so that will help us again to that diversification point. And in Japan, we are starting to see a little bit of of more positive momentum going into the second half of the year, but they were hit again quite hard and and as well as across Asia in the IT market. So it's primarily IT, which, again, the wider industry is feeling as well. So next question is just asking that despite cost reductions, adjusted operating profit fell, how do we plan to balance cost control with necessary investments for future growth?

15:02 So so I'll say, firstly, it it it is it is a balance. When we're we're making those cost reductions, we're we're very careful to look to ensure we're protecting business in terms of its ability to grow and its ability to come back when that market recovers. There are still investments going on within there because, you know, we need to make sure we're investing in IT in particular, but also training and and those sorts of areas which are gonna help us maximize that NFI growth as and when the market recovers. So, absolutely, it is a balancing act to make sure we get that right, but, you know, we feel we're we're making the right decisions on that and ensuring that we're, yeah, we're not carrying more cost than we should, but we are we are protecting the the the core consultant base that will help us come back.

15:55 So there's one more question here. So given this challenging market conditions, what growth opportunities or sector do we think has the most potential for recovery and expansion in the short to medium term? So I would say, I think offshore is going to come back extremely strong. Historically, it came back, you know, if you think back to COVID COVID, it it took a quite a dip during COVID, but then within a few months, it started to rebound and and rebound and and off the back of that had a couple of of record years. So I think offshore will come back extremely strong. I think IT eventually is going to to stabilize and come back, and that's continued what we consider a high growth opportunity for us in the future.

16:44 As well, what we are continuing to focus on is really making sure that we have a balanced portfolio between our temporary contract business to our permanent business. So I think continuing to focus there on making sure that we're growing that proportionately on the temporary contract side to, again, protect against what has happened in the market with the permanent placement erosion over the last year and a half. That's great, Rona. Tim, thank you for addressing all those questions for investors today. And, of course, the company can review all questions submitted today. I will publish those responses on the investor meet company platform. I can see one question has popped up. Would you like to address that question? Or we can leave it for another time.

17:31 Hold on. I'm just trying to see see what it is. So yes. So the the just someone is commenting that in the previous RNS, we highlighted that I think the question here is saying about commenting on the value of the sum of the parts versus the the market cap and group. And I think what what we did comment on in past RNS was really pulling out the potential value of our offshore business, which, you know, has been extremely successful, and we've seen, other transactions in in the marketplace to show that those sorts of businesses can go for high multiples. Mean, that that remains the case. I mean, yes, offshore has had a a more challenging 2024, but we still see immense value in that business, both both now and going forward in in in the future.

18:20 Perfect. Thank you very much, Tim. But before we redirect investors to provide you with a feedback, which one is particularly important to the company? Rona, can I please ask you for a few closing comments? Yes. Thank you very much. I think I'd like to, close by saying that we are extremely confident in our ability to continue to successfully navigate the current environment and even more confident in our ability to capitalize quickly when the market recovers. I wanna thank everybody for their time today for joining us for the interim results presentation, and I look forward to a much more positive update in the next time we speak. Thank you very much. Perfect. Rona, Tim, thank you once again for updating investors today. Could I please ask investors not to close the session as you will now be automatically redirected to provide your feedback and order that the board can better understand your views and expectations?

19:18 This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of EMPRESARIA GROUP PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.