Empresaria Group (LSE:EMR) — Interim Results Webinar

0:02 Good afternoon, ladies and gentlemen, welcome to the EMPRESARIA GROUP PLC Interim Results Investor Presentation. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Simply click on Q and A, type your question into the bottom 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 will publish responses where appropriate to do so. These will be available via your Investor Me Company dashboard, and you'll be notified

0:32 once they're ready for your review. I'd also like to remind you that this presentation is being recorded. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Ron O'Driggs, CEO and Tim Anson, CFO of EMPRESARIA GROUP PLC. Good afternoon. Good afternoon and thank you so much and thank you everyone for joining us today for our interim results half year 2021. I'd like to first start off with giving you a high level overview of what we will be covering today. We have the financial review, the sector analysis, of course, the outlook and the appendices is attached for your reference that gives a lot more color on the presentation today that you are seeing. So first, high level overview and I'll get into a little bit more depth here as we go through the presentation.

1:23 But as a reminder, we are a global diversified staffing group operating in six sectors of 19 countries and servicing many more than that. Those of you who are familiar with our story or familiar with the business mix, this slide what we've done is try to highlight a few things that maybe have changed from previous. So you'll notice that healthcare has increased to 8% of the group's NFI, that's largely due to our health care business reaping the benefits of COVID nineteen and supporting both the vaccination and the testing programs. In in addition, APAC reduced to 34% of the group NFI due to the impact of the aviation industry. That industry has been hit very hard and and that will take time. We'll talk about that a little further in the deck, but it will take time to recover.

2:24 75% of our net fee income is from outside of the The UK. And and something else to note on our temp perm split, while it looks like it's in line with prior year, we excluded aviation, temporary proportion has increased. So again, if you recall in previous presentations, we've noted that ideally we'd like to get to a 70 contract perm or seventy seventy contract, 30 perm split, and we are making strides in in in progress in that area.

2:59 Overview of the half one, we've had strong recovery in profits. Our adjusted profit before tax, 67% up on prior year and 8% of 28% ahead of 2019. Progress on our net fee income recovery, q two was up 30% on prior year with growth in all sectors. Q one was down 19 versus prior year, and that reflects the strong pre COVID comparator from from q one of twenty twenty, where if you recall, we had a very strong start to 2020 prior to COVID. And h one is up 1% on prior year, up 4% in constant currency on NFI. Our operational investments, including the appointment of regional leadership roles and continued technology rollouts are are happening and continue to accelerate, and we'll talk a lot more about our progress against those initiatives in a future slide.

3:57 And we are seeing that demand is returning to pre pandemic levels in many markets. However, what we are experiencing around the world is a skill shortage at a fifteen year high, which means while we have the demand, the supply is is not as strong. So it is imperative that we focus on making sure that we're attracting attracting and engaging our candidates much much more actively than than maybe we have in the past and continuing to find find those skill sets to meet our clients' demand. Some of the operating highlights include, first and foremost, the investment in regional leadership.

4:44 We have appointed regional CEOs for APAC and The UK and Europe in in h 1, and a president for North America recently appointed a couple of weeks ago. Those appointments are really important in accelerating our growth strategy for our regions and also, you know, to know that we have been able to attract some very high caliber individuals from our competitors who really believe in the EMPRESARIA story and the journey that we're on. So we're excited about them joining our team. We are continuing our investment in common technology. We have two more businesses live during h one, which is really four locations. And we are in the process right now of rolling out an additional seven locations that kicked off this week. So we are moving full steam ahead with that and and couldn't be more timely given the the talent shortage. You know, we one of the key benefits for the common technology platform platform is the ability to leverage a global database of candidates across the world.

5:52 The benefits of the operational initiatives that we have certainly seen is our US healthcare business. They had really off the chart demand. And but because of that, we also were able to generate much greater profits than normally we would because we are utilizing our offshore recruitment services teams in India to deliver against that demand. It has been very successful and has helped us increase our profitability in that business. Our German temporary business, if you remember, has has struggled on and off through the last couple of years, and that business was restructured at the end of twenty twenty to improve our focus and efficiency both in creating a sales and delivery environment or sales and recruiting environment to where people are a 100% focused on one or the other and not trying to do both roles because as you know, especially in a candidate short market, it's important that we have equal attention spent on that.

6:55 And you will see that they have much improved performance in both net fee income and profits in h one as a result of that. We've moved a number of operations again. We're continuing to move and have moved a number of operations into more of that sales delivery focused model, which has enabled businesses again to operate more efficiency and maximize their client and candidate facing activities. Really important as we're seeing this this wave of demand and supply. Benefits from diversification have offset challenges in two of our key businesses. So again, we are continuing to benefit from our diversification. Our half one results were very strong despite the fact that aviation continues to struggle and is not expected to recover in the short term.

7:43 And we've had significant challenges in the labor market for our German logistics business. Again, a supply issue getting people to to cross the borders and people being more reluctant to do so given the COVID environment. So that business had a very strong 2020, but there are challenges right now in the labor market that are causing that to to be a little bit down from last year.

8:11 I wanted to make a quick introduction to our senior leadership team. First is Julie Smith. She has more than twenty years of staffing experience primarily in MSP and RPO services, which is greatly beneficial to the group. She previously ran over 26 countries and oversaw operations in those countries and is very well at first in delivering sophisticated client solutions to to companies across Europe. We have a regional CEO appointed from Adecco, and he is recently relocated from Australia to Singapore just in the last few weeks. He also has more than fifteen years of staffing and and experience significant particularly in the APAC region.

9:04 So he comes with great benefit and and definitely has also a very strong IT background having run one of the IT brands out of Deco as well.

9:16 And then we have our president of North America that recently joined us. He has more than twenty years experience as well in staffing solutions and and the key for us in in The US market in particular, it is a huge growth opportunity for us as we go forward and his focus will be on expanding our health care business our health care business and but probably equally or more importantly is really driving that expansion into the IT contract business. As many of you will be familiar, we are predominantly permanent placement in The US with IT, and there's a very large contract market. And Garrett brings a ton of experience in being able to deliver to high volume contract requirements.

10:10 Wanted to give you a quick update on strategic objectives. In our annual report, we listed out our 2021 priorities. I won't go through all of those. They're they're up on the screen for you. But wanted to highlight again some of the progress against those initiatives. So we did identify that we wanted a regional management structure and sales structure. We have regional leadership in place. We've already also hired a regional salesperson, really the first one we've had for a while or at least in the in recent history of the group that is working cross cross businesses and cross regions to try to really accelerate our cross selling efforts, and we will look to do that and replicate that in the other regions as well.

10:59 US healthcare had a strong, you know, h one as we mentioned, again benefiting from the the large demand in COVID vaccinations and testing. And our offshore recruitment services business opened up in The Philippines the beginning of this year. That has been something that has been on our radar for some time, and we decided to take the leap and do it first part of this year. And that business is up and running. We are billing clients from The Philippines and are seeing a strong demand, from our US based clients in the offshore recruitment business for people in The Philippines. So we see that business really in in The Philippines being able to expand pretty pretty quickly over the next twelve to eighteen months.

11:51 NFI is up 30% on prior year with q q two increases in all sectors. There's early traction in growing temp in IT in The US. We have recently won an account that is helping us get some some early traction on growing our temporary business in the in The US. And, the addition of Gerrick will help us drive that even further. And we have two more businesses live on our technology platform in the first half, which was a total of four locations. We have just launched, again, as I mentioned,

12:30 six or seven. I think it's seven locations that are going live and have to. So it is, again, greatly beneficial to us to be doing this right now and are try we are trying to get through this as quickly without business disruption. So I think it's been a a major effort on our part to get this moving, but it the rewards will be tremendous when the when it's completely rolled out. Our we refinanced our revolving credit facility in March 2021. Our dividends restarted in June paid in June 2021. And our investments right now are focused on growth and delivery recovery from COVID nineteen, and we'll particularly have our sights set on, you know, growing in that US market and, of course, recovery in both our UK, European, and and Asia Pac regions. In Asia, we are well, with all three regions right now, we are working on our three year strategy.

13:33 And in Asia, in particular, we are going to be very laser focused on investing in organic growth in Singapore, Japan, and Australia, which are are really the the countries that have the the greatest potential.

13:50 So with that, I'm gonna turn it over to Tim Anderson, CFO, to take you through the financial review. Thank you, Rona. So I'll just start with the the overview. Rona's Rona's touched on a number of these. So net fee income up 1% or 4% in constant currency with our adjusted profit before tax up 67 percent. And when you look at that against 2019, net fee income, you know, looks like it's significantly down nine down 19% in constant currency. Actually, the the vast majority of that is

14:21 due to the closure of loss making businesses, which we we've done a number of over the last couple of years, and also the impact in our aviation business, which as as we've talked about is having a tough time at the moment. If you take those factors out, actually, NFI was was broadly in line with 2019. So as a result of that, actually, we've delivered profits that are are back at 2019 levels in the first half. I was looking at net debt. Our adjusted net debt has increased during the period. This reflects working capital outflows as our trading has improved. Hedge room remains strong, 12,400,000. So we do have the ability to cope with increases as demand in demand. And, of course, if demand, you know, recovers further, then we'd expect to see that reflected in our working capital movements in the second half.

15:17 Just looking at the results by sector. In professional, actually, you exclude aviation, that sector has performed well. In the second quarter, excluding aviation, we were up 59% on 2020, and we've seen, you know, growth across all of our other businesses in this in this sector. Aviation demand does continue to be weak, and we're not seeing any significant signs of recovery yet. If you look at the Asian markets in particular where probably around two thirds of our our businesses, you know, the the lockdowns continue. We're seeing ongoing disruption to aviation, you know, internal flights being canceled, etcetera. However, we do see that this business will have good medium and long term potential even though we expect these short term challenges to to continue for the foreseeable future.

16:09 The temp per mix in this sector has been a bit skewed by our aviation business. Aviation is is essentially a 100% temp, whereas the rest of the sector is is majority perm. So although, you know, perm was was most heavily impacted last year, generally speaking. This sector, it looks like it shifted more towards perm than temp, and that's a function of the the aviation impact. So moving on to IT. We've had a very strong performance from our business in Japan this year. They've grown both profits and net fee income on 2020. In The US, we had a pretty solid first half, albeit behind a very strong 2020 comparator. Whereas in The UK, we've seen some improved profitability as a result of the restructuring activity we undertook at the end of last year. We do see on you know, our UK business actually produce places the majority of its work outside of The UK, so mobility of of talent is a real challenge for them. And as Ron had touched on earlier when we talked about the logistics business, the mobility of of talent across Europe is still is still challenging.

17:18 Overall, those sectors performed well, and adjusted operating profits increased on last year.

17:25 Health care has had a very strong first half. It's it's a record half for this sector. We've seen strong growth across revenue, net fee income, and adjusted profits. And really that flow down from net fee income to to profit is a result of the the operating model, which is highly efficient utilizing our Indian offshore recruitment services business. We would expect the activity levels to drop back closer to normal levels in the second half as vaccination programs across The US and Finland start to slow down. However, we are looking at other revenue streams that we hope to come online to to replace that. In property construction and engineering, our our core business supplies sales staff to new home sector and demand there has remained extremely low.

18:13 Although the housing sector in The UK is very strong at the moment, what has happened is those businesses have changed the way in which they're operating during COVID, and that has reduced their requirement for temporary staff that we are supplying them. The sort of last restrictions on The UK COVID restrictions may well be the catalyst for change in demand. What we'll see over the next few months is whether that demand will return or whether the changes to the operating models that have been put in place over the last eighteen months become more permanent. We do have a focus on changing the focus of this business to areas with high demand such as white collar construction roles. And so we're we'll we'll be looking to rebuild this business either via the recovery of this new home sector or by diversifying into other areas.

19:07 In commercial, we've we've had an overall positive performance with increases in revenue, net fee income, and profit. In Germany, we have had some challenges with our logistics business. We've had good demand, but difficulties recruiting workers due to the strong labor market and that ability to get workers to move into Germany from from Eastern Europe has meant that it's been difficult to supply that demand and the businesses is has got lower NFI and profits than in the previous year. However, elsewhere in Germany, our temporary business has performed extremely strongly. Ron had touched on this earlier. Yeah. We did that restructure at the end of last year, and that's given us a a good boost in h one. We are expecting some short term challenges. We do have a lot of automotive clients, and there's been supply issues in that sector, and we're seeing extended summer factory closures. So we expect some some short term impact from that.

20:00 Elsewhere in LATAM, we've had very good performances in Chile. You know, they've they've dealt very well with COVID. They've had a very strong vaccination campaign, and that's enabled businesses there to to continue to operate effectively. Peru has been more challenging. They've they've dealt with the COVID situation much less well, and and that's had a knock on effect on the economy there. So that has had a more challenging first half.

20:24 Then in our offshore recruitment services business, our Dubai operation, we we classify under this sector. It's not strictly speaking providing offshore recruitment services, but it's from a management perspective as you can hear. We've we've now exited that business. It's been loss making for a while. So that's the the the cause of the the drop in NFI from 2020 to 2021. However, our core business based in India has performed extremely well. NFI has grown, and profits have also grown significantly. Demand from our clients in The US and UK remains as as strong as ever and and really has been increasing this year, and we now have an internal headcount of over 1,500 people in this business. And I'll hand you back to Rona for the outlook.

21:10 Thank you, Tim. So I I think the outlook, we've obviously are entering the second half really strong with some good momentum. We're continuing to invest in the business. We with the regional leadership team, we're focused on embedding the the structure and the regional strategies. Those include, you know, and certainly are not limited to continuing to drive efficiencies in the business to drive higher conversion ratios, capitalize on cross selling activities, which we really have not been able to fully leverage as a group. I think we will definitely start to see some notable progress in regional cross selling opportunities going forward with our new leadership in place to try to coordinate those efforts across multiple businesses.

22:05 And the continued technology rollout is a very, very focused effort by us to get that done as quickly and efficiently as possible. We are seeing strong demand in most markets leading to skill shortages in key sectors. Again, as I mentioned before, and staffing industry analysts are citing a fifteen year fifteen year the greatest talent shortage in fifteen years. So I think that is something that we have to keep top of mind as we continue to look at new and innovative ways to attract talent into the businesses. COVID nineteen is as Tim mentioned, you know, we probably get two thirds or maybe even a little bit more than that in Asia that are either in full lockdown or in in partial lockdown right now. So that continues to remain a challenge for us in the short term.

22:54 Global operating companies some of our operating countries that we operate in have slower vaccination programs, less effective responses to COVID. We expect the drop off in healthcare's vaccination programs slow in The US and Finland. However, we are looking at other areas. For example, we have started to get some very early traction and success in travel nursing and are really starting to pick up that piece of business. So we see that as as certainly an opportunity to offset some of the high demand we've had in the other areas. And, of course, there's the ongoing risk of additional waves and variants of COVID, you know, that are happening around the world. So we need to remain cognizant of that. However, we have proven that we can effectively lead the teams and run our operations through through COVID and have established very strong COVID protocols.

23:54 So while while there's a risk that there could be a business impact in terms of demand, I think at the same time we have and or supply, we we have definitely proven that we can operate with restrictions and and in lockdown with with good solid productivity. And we have the enhanced leadership team is going to absolutely help position us to deliver on our ambitions much more quickly. Having people that are in country and on the ground are really working to, as I said, you know, generate those or leverage cross selling opportunities and continue to focus on the operational initiatives that we have started and made such good progress on over the next eighteen months. There's still more opportunity there, and I look forward to reporting back to you at the end of the year.

24:48 That's fantastic. Ron and Tim, thank you very much indeed for your presentation. And ladies and gentlemen, do please continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. Just while the team take a few moments to review those investor questions submitted already, I'd like to remind you the recording of the presentation along with a copy of the slides and the published Q and A can be accessed via investor dashboard on the Investor Day 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 will be redirected for the opportunity to provide your feedback in order that the company can better understand your views and expectations. Ron and Tim, we have had a couple of questions that have come through. So perhaps if I could just direct you to that q and a tab and where appropriate to do so, if I may ask you just to read out the question and give you a response, please. Yes. So we we've got a got a couple of questions in, both, I think, probably for you, Rana. Yeah.

25:39 So one is, yeah, what do you see as the biggest opportunity moving forward? I I think the biggest opportunity moving forward is is, of course, continuing to drive the the efficiencies that we've seen such great success in over the last eighteen months to, again, continue to push those conversion ratios higher. Cross selling opportunities, and I think that's one of the other questions on here. We have we have small wins in terms of cross selling opportunities, but nothing real notable at this point just because of the the kind of the lack of coordination across the multiple businesses. So I do believe that that is a huge opportunity going forward for us in leveraging our our leadership team to help drive that. And, of course, leveraging technology to really maximize our opportunity to capture the increase in demand. I think that is, you know, the the sooner we can and and we start to see incremental benefits as we get, you know, more and more businesses online with the technology.

26:44 But I think the the real benefit will be when when we get the majority. So for example, Asia Pac is almost all by the end of this year. Well, almost most of the businesses, if not all of them actually, with the exception of our offshore recruitment business, will be on a common technology platform. And that will make a substantial difference in our ability to really drive and maximize cross selling opportunities and share candidates across regions. Thank you. Compliment, Simon. So it's one of the question come in, which is, you know, do you think m and a forms part of your growth moving forward, and what would you look at? Absolutely. I I I do think there's an awful lot of organic growth opportunities across the group.

27:31 However, you know, m and a is definitely something we we are always looking at and always exploring. What we will be is quite, you know, fussy in in what we look at. What we want to do is bring things into the group that's gonna be additive and and additive in more than one area. So not just about bringing something in that that maybe is in a different sector, but something that's gonna gonna benefit the existing business in the group. So, yes, absolutely, we'll be looking at m and a, but it it really has to be the right thing and something that we believe is is gonna benefit the group. That's all the questions. I think you have just covered them all off there. And of course, if there are any further questions that do come through, the team will be able to review all questions submitted today and we can publish those responses back out where appropriate to do so.

28:21 Rhonda, just on that note, if I may, just a few final words to close off before we redirect the attendees to give you some feedback, please. Well, first, I want I want to make sure to thank each and every one of you for, first of all, for spending time with us today, but also for your ongoing support of the group and interest in in our future. I also wanna note that you probably may not have noticed the subtle logo on the first slide, but we are celebrating our twenty fifth anniversary as a group this year. So that's exciting. And I would probably close by saying I I really do feel that we are reinventing ourselves in the marketplace. We're we're making we're doing the right things and I am confident in our ability to continue to deliver on our ambitions. So thank you all very, very much for your support, for attending today. And I look forward if you have any other questions, please submit them after and we will be sure to answer them.

29:23 That's fantastic. Ron and Tim, thank you indeed for updating investors today. Could I please ask investors not to close the session as you'll be automatically redirected for the opportunity to provide your feedback in order the team can better understand your views and expectations. This will only take a few moments to complete and is 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. That concludes today's session. Thank you.