Empresaria Group (LSE:EMR) — Investor Presentation

0:02 Good afternoon, and welcome to the EMPRESARIA GROUP PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and 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 will review all questions submitted today and publish responses where appropriate to do so. Before we begin, I would like to submit the following poll. I would now like to hand you over to CEO, Rhonda Triggs. Good afternoon to you. Good afternoon, everyone, and thank you so much for joining our today on the presentation for our yearly results.

0:50 So quick overview of the group's performance. We saw solid growth in net fee income, up 10% on prior year. And what's interesting is we did see year on year growth in every quarter of 2022 even though we saw the, h two started to soften as it progressed, toward the end of the year. Our adjusted operating profit increased by 10% and our profit before tax was up 5% reflecting higher net interest costs. Our adjusted net debt was down by $6,100,000 from 12/31/2021. Our dividend has increased by 17% to 1.4 p. And the key themes that we'll be going through in the presentation today are, showing, of course, very strong growth in our offshore services business along with the ongoing benefits from our diversification and the operational investments that are continuing and also delivering benefits.

1:51 The board strengthened in early twenty twenty three with the appointment of two new nonexecutive directors, and we remain well positioned to realize our ambition of delivering 20,000,000 adjusted operating profit in the medium term. Going to our operating highlights, we saw, again, very strong growth in our offshore services business. Headcount overall increased to more than 2,500, which was up 27% from the 12/31/2021. Net fee income was up 75%. Profits up 73%. We made, in the half two of last year, we made investment in infrastructure both in terms of additional office space and facilities, but also in our IT infrastructure to enable further growth.

2:40 We saw very strong demand in The UK driven by health care and our health care clients, and we saw a slowdown in half two in The US demand, primarily driven by IT. In The US business, we support a lot of IT recruitment. And as as we've all probably been reading in the news, the technology layoffs, really have impacted us. Now we we expect that those seats will come back to us, but in the meantime, we have experienced that slowdown which has been more than offset by, the increase in The UK. Ongoing benefits from diversification, we'll talk about a few points. So, again, we mentioned the offshore services piece. We also saw strong growth in professional and IT in APAC.

3:28 And we also saw strong growth in professional in our logistics business in The UK and Europe. And if you remember, our logistics business had a pretty tough 2021, excuse me, but this year really rebounded and turned in a nice, a nice year for us. Those businesses outweighed expected drops in health care and client supply chain issues that we continue to experience in the automotive sector in our German temporary business. Our operational investments continue and are delivering benefits. We've seen growth in sales and recruitment teams up 8% excluding our offshore services. We're starting to see the benefits from our investment in our common front office system. We are the majority of the way through our implementation of the first phase of that. We will complete the final businesses at by the end of twenty twenty three.

4:24 We saw some early success in in delivering RPO projects, particularly in the APAC region, actually contributed to a few of our businesses performing at all time highs in NFI for the year. We're continuing to drive forward, the move to a more focused sales and delivery model, and that is, continuing to evolve as we, go into 2023. So on the strategy update, focused really on the 2023 priorities. You know, we are as part of our road map to 20,000,000, we are launching the professional sector operations in The US. So currently, our US businesses are health care and IT, and we really have that gap in that middle of not being able to cover any of the professional positions, HR, finance, the other types of roles that, obviously, most of our clients have in those markets. So we're launching that. We're well underway. We've identified we've hired a team, and we've have an office. So that is due to launch here in the very near term.

5:37 We also have implemented a go to market branding strategy alongside that. So as we look at our blue blueprint and our investment in our high growth sectors, we're really focused on on creating a go to market branding strategy that isn't going to just throw another brand in the mix, but capitalize on kind of our premier brands in the group. So that is happening right now. And this this blueprint for go to market, it when we look talk about future openings such as Japan or Germany in the professional space, this, US launch will really give us the blueprint to take that forward. We have, also slated for this year to launch EMPRESARIA solutions to drive regional sales and wider service offerings. So these are service offerings that are outside of the traditional scope of temporary and permanent recruitment.

6:30 They they could include, RPO services, SOW services, payroll services, and along with, you know, regional and global sales. The goal and the aim of EMPRESARIA solutions is to not only offer additional evaluated services to become more sticky with our clients, but in addition, make the make it much easier for our clients to buy from us across multiple sectors and or geographies. We are continuing to expand our offshore services hub in The Philippines. As you may remember, our hub was established in, beginning of twenty twenty one. We now have a 105 head count at the end of December twenty twenty two, and that will continue to be a growth area for us.

7:19 On the increasing diversity of profits, again, the priorities are really we we set out our progress in 2022 is really to increase RPO activity levels. And, again, we've seen some early success, so we feel well positioned to take that into the launch of EMPRESARIA solutions more on a group wide level. And finally, focus on growing temporary and contract IT in The US as, again, the market starts to recover. As the market starts to recover, we generally see that the temporary contract will recover more quickly than the permanent. And right now, currently, our focus has been primarily in the permanent space in The US for IT. On productivity and efficiencies, we're, as I mentioned, continuing to implement the front office platform and focus on maximizing the post implementation benefits of that system.

8:17 We are really excited that we are now able to see data across the group for the brands or the businesses that are currently on that technology and much much better business analytics going forward. In addition, we're looking at the second phase of complementary technology projects that our current IT steering committee is working on, And those could be things like onboarding or reporting tools to drive continued productivity and efficiency gains in the businesses. We're continuing to also drive internal utilization of our offshore service offering. We are now up to 14 of our businesses utilizing our offshore services, group to supply recruiting support and or back office support.

9:07 And while that doesn't represent the whole of the group, when you think about the markets that our offshore can support, they're primarily English speaking countries. So we've made a good solid penetration, and we're looking to even further that in The UK with the creation of a delivery center to service UK MSP clients. This will enable us this is a market that we traditionally have not gone after because the margins are low and and the competition tends to be, you know, there are multiple competitors competing against, requisition. So speed and, of course, cost of delivery are hugely important in being successful to deliver to MSP clients. And lastly, as we look at our targeted investment in growth, we're, of course, continuing to invest in offshore services, whether that be in, additional space or infrastructure on on the IT side of things.

10:12 We are continuing to invest in our technology road map that's extremely important to us as we look to gain efficiencies, increase our fill ratios, and roll out a global candidate database. We are also looking to identify future growth opportunities. Those could be we we are not actively pursuing any sort of external acquisition or m and a activity at the moment. However, we are keeping abreast and actually looking at things as they come across, and, hopefully, we'll be in a position to do that sometime in the future. Now I'll turn it over to Tim for the financial review. Thanks, Rona. So I'll just run through the numbers. Rona's picked up on some of these. So I'll just pick up on the other ones. So revenue is is flat year on year, and that really reflects the mix between temp and perm. So we've seen strong perm growth, but temp has dropped black slightly. So revenue is flat, whereas our net fee income is up 10%.

11:16 Adjusted operating profit is also up 10%. Adjusted profitable tax is up 5%, and that reflects a higher interest charge this year, reflecting the increase in interest rates. And then diluted EPS up 2%, and that reflects the growth of our offshore services business where we have a 28% noncontrolling interest. Adjusted net debt has reduced significantly in the year, down by $6,100,000 and is now set at 7,900,000 That's part reflects the profits that we've generated this year, but also a working capital inflow as that mix has shifted towards perm and away from 10,000,000 contract, which has a higher working capital requirement. This means our debt to debtors ratio, which is our net debt as a percentage of our trade debtors, has reduced to 24%, which is below our long standing 25% target.

12:11 So we are very comfortable with our our level of net debt. Hedging remains strong, which has increased by 5,000,000 to 17,900,000. And, you know, as we've shown, particularly during COVID, we've had we do have a proven balance sheet. So in the event of a downturn, we've shown that our working capital unwinds and net debt can significantly reduce. So you saw that in 2020 on the chart. You can see in June 2020, there was a significant reduction in our net debt. And with our trading over the next last two years, although our profits have recovered and working capital has recovered, we have now got that level of debt down to that level of sustainable position. Moving on to the operating review. So firstly, just an overview.

12:56 You can see there on the left hand chart that our offshore services business has now increased to 20% of net fee income, up from 12% last year. On the middle chart, our temp to perm ratio has reduced, reflecting the strong growth in perm, but we still target a seventy thirty ratio as we move forward. And then on the sectors, this chart reflects the strong growth in offshore services, the strong performance in professional, the expected decrease in health care, and then also a weaker performance in IT as the year progressed, and that is now a smaller percentage of our total NFI than it has been previously. So moving on to The UK and Europe. We did see mixed performances in this region. The UK was generally fairly strong. NFI was up by 2%, and we did see double digit growth in profit. Really, this was driven by a professional business because, actually, our UK IT performance wasn't as strong as we would have liked.

13:53 We are putting in place corrective actions in order to improve this, including a focus on The UK market. Although our business is UK based, around 75% of the NFI is generated from Continental Europe. Our logistics operation in Germany returned to growth after a challenging 2021, whereas in our temporary business in Germany, we did see that drop back reflecting supply chain issues. We are our clients are quite significant in the automotive sector, and that has continued to be challenged in Germany. And we are seeing an impact from increased sickness rates, particularly from COVID related sickness as these are, you know, roles in manufacturing entities. If there are people who are sick, they can't go into work, and that impacts our margins.

14:41 In Finland, we've seen the expected reduction following the wind down of COVID nineteen related activities such as vaccinations, and there have been some significant changes to public sector health care, which also led to demand falling there in 2022. In APAC, we've seen very strong growth across most of our operations, and we've seen record years in a number of those, Singapore, Indonesia, Philippines, Thailand, and Japan. We just see weaker performance in Australia where NFI fell, and particularly, this was driven by a fall in temporary and contract revenues. And this operation did make a loss in the year. However, we have taken action at the start of 2023 to position this business to get back to where it should be.

15:26 Vietnam has had a strong 2021, but that progress was disrupted during 2022 as a result of some high turnover earlier in the year. And we have seen good early success from offering RPO, and that was really one of the drivers behind some of those record growth, particularly Indonesia and Philippines, where we've seen some success. Aviation continues to remain a challenge for the group, although we hope to see this start to improve as we move forward as China and Japan, have both now opened up more fully. In Americas, really, the results were driven by the expected drop in health care. So this is following the the strong COVID nineteen results last year. They're just having a a record year. And then also IT, which in the first half of the year, we saw a very challenging, very competitive market where counter offers were the norm, and we were approximately 40% of all offers were were counted and and lost as a result. This really changed in the second half where we've seen the high profile layoffs amongst a number of IT operations, and this did impact some of our key clients where we saw demands drop off. And as a result, we saw a a fall in year on year net fee income in IT in The US.

16:40 LATAM was stable. NFI was stable. Profit sales slight fell slightly as we were investing in the cost structures of these operations. Now on to offshore services. For those less familiar with this sector, there is a further slide in the appendix, which just gives a little bit more background as as to what this what this business does. We've seen an extremely strong set of results in 2022, and this was a carry through of strong momentum in 2021. During the year, we continue to see headcount grow up by 27% between the beginning and the end of the year. This was driven by significant growth from our UK clients who are primarily in the health care sector, and the number of billable seats rose by two thirds. In The US, we did see a slowdown in demand where we have most of our clients are operating in the IT space.

17:30 This was particularly in the second half, and so we did see a a fall in the number of billable seats at the end of the year. As Rona mentioned, our new operation in The Philippines is one and truly up and running. It's now up to a 105 headcount. And we have made significant investment in the infrastructure, and that's both in terms of headcount capacity, office, IT, etcetera, to support the future growth of this operation. I'll now hand you back over to Rona. Thank you, Tim. So on to the update on the road to 20,000,000. Some of you may be familiar that we hosted a Capital Markets Day in October to outline our ambition and our road map to double our operating profit in the medium term.

18:16 And first, we wanna focus again high level. Our three key pillars for growth are really, first and foremost, accelerated growth in high potential sectors. Second is diversifying our client offering through EMPRESARIA solutions. And the third is continued growth in offshore services, which is a key differentiator for us. So on the next, slide here, we'll look at how this how this maps out, and I'll stop specifically and give a little bit more color on the the various pillars. So on pillar one, we are looking to build scale and accelerate growth in our high potential sectors. And what that really looks like is if you if you look at the current current landscape of what where we operate, we currently offer, as an example, professional recruitment services in just two of the six of the largest staffing markets globally despite having operations in five of these. So professional is an obvious choice for us to start and really try to accelerate our growth in in really providing more scale in key markets for us. So as mentioned, we are launching in The US first and future road map. It will include Japan along with Germany and potentially Australia.

19:37 The second pillar is really growth in new services, which is EMPRESARIA solutions. And, again, I I spoke to that a bit earlier, but this is an opportunity for us to really offer some differentiated services to our clients and capture additional market share within those clients as well as cross selling efforts across the group. And the last pillar is our continued growth in in offshore services, which is, again, a a key part of of the group and and definitely saw an increase, I believe, up to 20% NFI this year across the group, which is the largest contribution to the group it has had. So looking forward in that business as as the markets recover, particularly in The US market and with their continued growth and success in health care in The UK, we see a very bright future for offshore services moving forward.

20:40 If you just bear with me a moment, we're gonna actually pull up the appendices here and cover up a little bit of offshore services and what that is because it is it is such a core and important differentiator for, for the group. Just for those that are not familiar, our offshore services region operates from three locations, two in India and one in The Philippines. We provide a wide range of services to our clients who are primarily based in The UK and US, and our clients are in the staffing sector. So primarily across a wide range of disciplines, including health care, IT, professional, and industrial. Our services are tailored to our clients' needs and can include really any stage of the recruiting process up to it it can be purely only sourcing. It can be screening. It can be all the way end to end recruitment for our, for the staffing sector as well as middle office compliance and credentialing and back office.

21:40 This is also if you look at the diversity within our offshore services business as well, again, we've got, you know, multiple service lines and multiple offerings. We're able to operate across multiple disciplines, you know, across the board, whether it be really any kind of staffing at all, and primarily in two of the largest staffing markets being The US and The UK. The clients typically pay on a per seat basis, and they will have a dedicated team. So if you picture it, it is it is like having an extended team of your own but sitting in another location. So that really, the the success of working with offshore services really comes into really treating them as they're they're your own team, but taking advantage of the fact that we have a whole infrastructure there to support in terms of hiring new new people as business demands increase, training, marketing.

22:38 So there's a a whole wide range of services that we provide, but really partnering with our clients, true partnership where the clients really feel as though those employees are are part of their extension or an extension of their own team here in either The UK or The US. And then finally, on the outlook. So this is a tricky one. You know, we we have to say that we we do look ahead to 2023 with caution given the the wider economic environment. Couple of things to note. We've we have seen softening in demand at the end of twenty twenty two that has continued to into early twenty twenty three. The IT slowdown continues with many profile high profile layoffs as you're probably reading about in the news, in particular, in The US market right now.

23:29 And the other thing that we're feeling right now is a bit of a lag or a stall where you have on the client side of things, the client is sort of they they have a need. They wanna hire, but they're sort of in this wait and see what happens, mode. So it's taking a little bit longer to get those those positions across the line. And at the same point, you've got the candidates who are now not maybe probably acting a bit more conservative given the economic environment in terms of changing jobs if they feel relatively secure in the one that they're in. However, I will note that, you know, vacancy levels across our markets remain above pre COVID levels. And when you look at the the the incoming job orders, and we're looking at this, probably weekly at this point, when you're looking at the in coming job orders across the group, it's really a steady demand, that we're seeing. So we're not seeing any major dips, and we have to remember that despite the the economic and the inflationary pressures, skill shortages are expected to remain. They're still here, and unemployment remains at near record lows in many of our markets.

24:39 We also have proven abilities to successfully navigate difficult environments. If we think back to how we navigated COVID, you know, our our diversity certainly was a was a factor in being able to successfully navigate it navigate COVID as well as our ability to be agile. And certainly, today, even we're a much more joined up group than even we were back in 2020. And finally, we will, regardless of what's happening in the wider economic environment, remain focused on our ambition of delivering 20,000,000 adjusted operating profit in the medium term. Now I will turn it back to Alex. That's great, Rana, Tim. Thank you very much indeed for your presentation this afternoon.

25:28 Ladies and gentlemen, please 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 our investor dashboard. Rana, Tim, as you can see, we have received several questions throughout today's presentation. If I may hand over to you for the Q and A and kindly ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you both at the end. Thank you. Thanks. We've we've had a we've had a couple of questions in. So the first one is, what's the time to establish professional operations in the major markets we've talked about?

26:15 So we, yeah, we typically have a, really, a a three year plan to start looking to start new operations. So, you know, first year is really about building building the base, building the team, building the client base. Yeah. Obviously, you would expect to make a a loss in that first year. And then the target is to move through, you know, breakeven and and then target profit in in that third year. So that's that's broadly speaking the the profile we look for. But, obviously, you know, each each market is different, and so we'll be looking to accelerate the growth as as fast as we can, but within the, you know, confines of wanting to generate a reasonable return reasonably quickly. And the next question is, can you talk about the tech platform and the holistic view you now have of the group and its impact on strategy?

27:01 So I think both of us will probably tag team this this one. But when you talk when you think about the tech platform, so prior to us rolling out our front office technology initiative, we had, you know, 20 businesses on 20 different front offer front office operating systems. Some of them were homegrown, some of them were off the shelf, and some of them were were, quite frankly, really outdated, and and some were manual. Now as we look to the the pieces of the business that are now implemented, and that is, again, about 60 plus percent. We're going live with another one here in just another month. What now we have the ability to go in and look real time at fill ratios, job openings, CVs, you know, the business analytics that you need to be driving on a on a weekly, if not daily basis.

27:55 And the impact on the strategy, again, is part of being a joined up group is having joined up technology along with the benefit of having group wide reporting on these critical KPIs as well as the evolution, which we will be going through in their next phase here shortly, is to you know, we're a global company. Why not, you know, maximize the opportunity to harness the power of our global candidate database? So that is something that's that we hope to have a an extremely positive impact on our business going forward. Tim, am I missing anything on that? No. I I think that covers most of it. I mean, I think that the overall well, not the overall point, but part of the point, though, is that we're still at the beginning of the journey. There's a lot more we're expecting to get from this as we move forward.

28:42 Putting in this technology platform really is is step one, and we'll be looking to leverage the benefits of it, but also looking to plug in the the extra features and and the additional, yeah, benefits we can get as we move forward over the next couple of years. I did just wanna revisit the first question. There's one thing which I which I I didn't mention. I'm I'm not sure if Rhonda did when she was doing the presentation, is that when we are opening these new operations in these markets, these are markets we're already in. So a key part of being able to get that new operation up and running will be leveraging our existing client base and our existing relationships and our existing structure in those markets. And that's one of the things that will really help us get those moving more quickly. That's great, Rana, Tim. Thank you for addressing those questions for investors today.

29:32 And, of course, the company will review all questions submitted today and publish responses where appropriate to do so. But perhaps before redirecting investors to provide you with their feedback, which I know is particularly important to you and the company, Rana, could I please ask you for a few closing comments? Thank you. Yeah. Sure. So first of all, I wanna thank thank you for your continued support and taking the time to join us today. I I will say that we are you know, again, given the wider economic environment, we are cautious. But at the same time, I will add that we are confident in our ability to navigate any difficult environments that we're faced with. And I think, again, time and time again will prove that our diversification is actually a benefit as opposed to a deterrent.

30:17 And in particular, now that we have a much more joined up strategy and joined up group and are able to really leverage off of each other's success across the group. So with that, you know, again, our commitment is to remain focused on our ambition of delivering 20,000,000 adjusted operating profit, and I wanna thank you again for your time and support. That's great, Rana and Tim, as well. Thank you for your time today and 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 management team 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 the management team of EMPRESARIA GROUP PLC, we would like to thank you for attending today's presentation.

31:07 That concludes today's meeting. Good afternoon to you all.