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

0:02 Good afternoon, and welcome to the EMPRESARIA GROUP PLC full year 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 it receives 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.

0:33 And I would now like to hand you over to CEO, Ronald Driggs. Good morning to you. Hello. Thank you so much for joining us today. Good morning. Good afternoon, everyone. We wanted to cover today the, full year results for 2,023. We, on the agenda first is the we'll give you a brief overview and strategy update. We'll go into some financials, operating review, and finally close out with the outlook. So please, please feel free to put questions at the question box, and we will attempt to answer as many as possible. So first, to give you a quick overview, obviously, the staffing sector experienced a a pretty challenging 2023, and we were no exception.

1:24 Market conditions, were not great throughout pretty much the the the whole of our markets and our sectors, across the group. Permanent placement was hit the hardest, down 25%. Overall, we we saw a reduction in our tempering contract of 10%. The overall reduction year on year was 12% on NFI, And our offshore services performed quite well, and we'll talk about that a little bit more in in the coming slides. But that actually saw growth of 8% proving its strength and resilience. Our adjusted operating profit was down 50% to 5,100,000. We had a higher cost base at the start of twenty three, reflecting an investment in headcount in 2022 to meet client demand combined with inflationary impacts.

2:19 We took measures to reduce costs in response to the reduced demand. So we, experienced a 17% reduction in headcount during 2023, excluding our offshore services business. Full year costs were down 5%. H two, however, were down 11% year on year. Adjusted diluted earnings per share reduced to to 0.6 p reflecting relative strength of offshore services, which has a 28% noncontrolling interest. Our adjusted net debt increased to 11,100,000 from December 2022 with headroom of 17,800,000. Our proposed dividend of 1 p per share is a reduction from 1.4 p last year, reflecting the board's confidence in the group's medium term prospects while acknowledging the lower level of profit in 2023.

3:22 Going on to our operating and strategic updates, we are focused on reducing operational complex complexity while delivering on our three key pillars for growth. We're reducing operational complexity investing in people, process, and technology. With that, we've streamlined our leadership structure. Our core sectors are now under a single leader in each country, allowing us to reduce the size of our senior management team. We've accelerated the implementation of our one eighty operating model in those core businesses across the group, and we've continued to invest in our front office platform and related products to help, again, drive greater efficiency and productivity throughout the group.

4:11 Our pillar one, as a reminder, is a focus on our core sectors of professional IT and health care. We took the decision to close our loss making operation in Vietnam this past year, And that, again, is a market that we didn't see that we were able to really scale our other businesses into that market, and it had, it had continued to throw off loss making, losses, sorry, throughout the majority of its time being opened in the group. We merged our UK marketing brand into our lead professional brand, and further divestments of four small operations are planned in in operations and markets success markets and sectors that have limited opportunity to scale.

5:05 Really, those are not going to be they're very small and not material contributors to the group, and that will further, again, allow us to further reduce complexity and allow us to scale in our IT and health care and professional businesses. Our US professional business did launch, last year under our lead professional brand. That business is, you know, just starting out, really, because, they, of course, launched in a in a very tough market, but we're already seeing some synergies with our IT business there in The US and have had some success in gaining some traction with cross selling both in the IT and the health care client space.

5:52 Pillar two is diversification of our service offering. We're continuing to work on developing additional services to further, diversify outside of the traditional contract and permanent hiring. We, saw success last year in developing some strategic partnerships to deliver against MSP programs in The UK, which we're super excited about. And then finally, success in delivering RPO projects continued, and in particular, our Philippines operations showed really solid growth last year. And part of that driver was their RPO services that they were offering in APAC. And then finally, our pillar three is continued growth in our offshore services business, which of course has performed really well over the past several years.

6:44 And we're continuing to increase not only our scale in that business, but also the diversity of services we're offering to our clients in that area. And now I'll turn it over to Tim for the financial updates. Thanks, Rona. So Rona's already talked through most of this, but just just to reiterate, so revenue down 4% and the reduction there is is lower than what we're seeing on net fee income reduced because of the mix. So, obviously, we're seeing perm drop by more than 10. So net fee income down 12%. Cost saving action in the year have helped mitigate the impact of that on profits, but because that's those savings were were second half weighted, we've seen adjusted operating profit fall by 50%. And then with that impacts our noncontrolling interest in offshore services, our adjusted earnings per share are down to naught 0.6p.

7:38 Looking to the balance sheet, adjusted adjusted net debt has increased during the year. However, our average month end net debt actually has been quite a lot lower the majority of the year. So what we saw was an increase in working capital outflows towards the end of the year due to some some specific projects and and specific sort of trading situation. So overall, actually, our net debt average has been lower, but we have seen that increase at the end of the year. Our debt to debt ratio as a result is is above our our targets, and that's increased to 36%. You know, we continue to target a sustained reduction to 25%. Headroom continues to be very strong, so we have plenty of scope in our facilities to handle any trading requirements as and when the market recovers.

8:25 And net finance costs are higher from the prior year reflecting those increases in interest rates, And, hopefully, that has now peaked, and, yeah, we wouldn't expect to see that continue to increase, although there may be a

8:40 a run rate increase in the first part of the year just to reflect where rates were at the beginning of 2023. Moving on to the operating review. So that strength in offshore services during the year means they now account for 24% of our total NFI. Our temp to perm ratio, we continue to target a 70 to 30 split. We have moved closer to that in the year, but, of course, that's more a reflection of the troubles we've had in perm rather than strength in temp. So that reflects our drop in perm. On the sector waiting, professional IT and health care have been challenged in the year, so commercial and offshore services now do make up a more significant part of the group than they did in the previous year.

9:25 Moving on to our regions. In The UK and Europe, net fee income was down 12 with adjusted operating profit down 36%. The the weakest results we saw here were very much in The UK where net fee income was down 21%. Again, the themes are are fairly similar. So the the greatest falls in the permanent placements and the largest impacts we've seen in IT and professional. Elsewhere in the region, our results in Germany were were quite solid. Net fee income dropped by only 2%. In Germany, we're in our our commercial sector, and the nature of our clients means that it's it tends to be a little bit more stable when we see these market movements.

10:06 In APAC, net fee income was down 14%, and adjusted operating profits moved the volume to a loss position for 2023. Again, the themes are fairly similar, that demands in in from technology companies, in particular, in APAC, both for IT and professional skill sets was really the main driver of results across the region. We did see some good performance today at The Philippines, delivered a record net fee income year, which was very pleasing. This was driven by some strong success in RPO that Rhonda talked about a few moments ago, and that's something we are looking to replicate across the region. Singapore and Australia both performed poorly during the year and, unfortunately, contributed losses. We have taken action in those businesses to improve performance, and we'd expect that to be better during 2024.

10:54 Our aviation business, which is is obviously struggled for the last couple of years, you know, aviation, although it's recovered quite a lot in in UK and and The US. In APAC, we're still, I believe, at around 70% of the levels of flights from from pre COVID. We are starting to see some improvement, and that's really come from

11:14 diversifying our offering outside of pilots, but also doing more more permanent business. We are seeing some improvements in NFI, although, unfortunately, our businesses remain loss making 2023. We are seeing some some positive signs.

11:29 Moving on to The Americas, really, a a sort of a a tale of two halves here. So in North America and US, that's the main driver of these results. The US was extremely challenged in the staffing markets last year. We saw a significant impact from both IT and health care. IT really impacted by the wider drop in demand, but also we had quite a lot of exposure to clients who were customers of Silicon Valley Bank,

11:54 and that's either that collapse at the start of last year. Did have have an adverse impact on our clients. They stopped hiring. And then in health care, we've seen that really drop in The US from those COVID highs with both the demand and pay rates falling substantially. In South America, Chile had a very strong year. They delivered some really good results with good growth in both net fee income and profit. Unfortunately, overall, net fee income in this region was down 30%, and we did move into a a loss making position for the year. Offshore services has continued to perform extremely well. Net fee income and adjusted operating profit both increasing despite the market conditions. This was driven really from UK health care, which grew strongly in the first half of the year. And we did see some fallback towards the end of the year as the NHS looks to manage its agency spend, but this didn't have a significant impact on results.

12:47 US demand has been challenging, but we did see this stabilize in the second half of the year. We're feeling more confident about, you know, where

12:55 that direction may move as we move into 2024. We just highlighted on this slide the the strong track record of this business. So we've seen a 32% compound annual growth rate in net fee income since 2017. And even during COVID, you can see that this business, although it was impacted, came back really strongly. So as businesses look to manage their spend in troublesome times, this is something that they can turn to to really help them perform and to manage their costs. So we continue to believe this is extremely valuable part of the group and something that we expect for well going forward. And now back to Rona for the outlook. Alright. Thank you, Tim. So we expect current market conditions to continue throughout the first half of this year, and that is the sentiment widely across the sector right now.

13:47 Relatively low unemployment rates and ongoing skill shortages should accelerate recovery. And I think, again, typically, what we see is the the temporary business will come back a a bit more, quickly than the permanent business. But we are, again, cautiously optimistic optimistic that, half two will will bring some, some positive momentum. We're closely managing costs right now, to manage costs, although we are making targeted investments in sales to ensure we maximize opportunities when the confidence returns. We are continuing to take action to reduce complexity and simplify our operations to enable us to drive scale, deliver on our strategic objectives, and create shareholder value.

14:36 We're confident in our ability to navigate through this environment, and we are well positioned to respond as the market recovers. And with that, we'll look to address any questions. Perfect. Rona, 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, 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. Rona, Tim, as you can see, we have received several questions throughout today's presentation. And if I may now hand back to you and kindly ask you to read out the questions, give responses where appropriate to do so, and I'll pick up from you both at the end. Thank you. Yep. So we've we've got a couple of questions. So firstly, can you expand on the enhancements and automation initiatives you have implemented, and can you see AI playing a role here?

15:36 Yes. And, Tim, I think, that's a great question since you have spearheaded, but we, I'll I'll let you take over. But I'll just say that that is an area we continue to focus on, and we additionally added a new technology bolt on, if you will, to our Bullhorn system that we have rolled out largely across the group. We have one business one core one of our core businesses left to and currently in implementation right now that should be completed this year. And, you know, the majority of what we look to, do will be completed once that rollout is done. Tim, do you wanna take the rest of that?

16:21 Yeah. And I think, yeah, the fact that we've got pretty much all of those core businesses on a single platform is what enables us to start to really get the the full benefits from our technology and to really start to enhance them with with those those bolt ons. I mean, just looking at the automation piece a little bit, mean, we've been using automation for a few years now, but we're getting better and smarter at how we use it. And and it saves such a a huge amount of time for, you know, people in our business and getting the, you know, the data complete and and accurate and and up to date is one of the key things we use it for as well as sort of, you know, making sure we're we're on top of, you know, processes of contacting candidates, making sure we're not leaving relationships to sort of lapse.

17:06 You know, we use it for lots and lots of different things, but I I do think we're still only really scratching the surface of what we can get from it. AI, you know, same point. I mean, we we we we are starting to to use elements of that in in what we do, but what we're we're making sure is that we're working very close with our IT partners so that as and when those sort of integrated AI solutions come in, we're we're able to be at the forefront of using those and and getting the benefits straight away. And I think although there are things you can go out and and do on your own and and use around your core products, what we really want to see is those tools to to to to build it in and embed it because that's where I think we'll get the, the best, the best value. And, Tim, I think Tim, I think just to add, one quick note to that is that we we have recently launched our global candidate database, and we were able to do that because we're on a single platform, which is absolutely going to be a a big, benefit to our businesses as they look to hire talent across, across the globe. And then secondly, the ability to really see into what what businesses are doing or what what clients we're doing business with in certain areas for cross selling and maximizing cross selling opportunities.

18:25 So it really, you know, I think this year, we'll really start to see the the full benefits coming through with those additional enhancements Tim mentioned as well as the global candidate database and the ability to really maximize cross selling opportunities with the CRM functionality. So moving on to the next question. So given the market conditions, what indicators should we look for to monitor the strategy effectiveness and potential to achieve your medium term profit targets? So I think when when we think about the looking at what what indicators, I think the the temporary, as I said, will will likely come back.

19:11 I mean, that's historically what has happened in in any sort of downturn. We see that temporary business come back up. So we should start to see the the uptick in NFI in the in the contract business for sure, as one of the key indicators going forward. I think the the other is just our ability to, I guess, navigate through through this market with keeping our cost base in in line with, and and reflective of of market demand going forward. And, Tim, is there anything else you wanna add to that? No. I think, I suppose the only thing I would say is that, you know, given the current market conditions, what what we're focused on is really is delivering the the elements of that plan. I think, you know, there's there's there's only so much we can do to control the market. But if we can make sure we are in the right condition to benefit from as and when the market turns, that's that's what we're really focused on to make sure that when the market's on our side, we can really, you know, drive that growth.

20:16 And then just one final question, which I think I'll probably take this one, Ronald. So do you see acquisitions in the current market as a near term opportunity to scale up the business others are finding it hard. So our our strategy is primarily an an organic one, and and we we focused on that as much then because we do, you know, we do have a net debt position, and we and we know that to an extent that that that's just advantageous from a, you know, an investor perspective and and being a a recruiting business is sort of frowned on slightly. That said, we very much will be keeping an eye out for opportunities as and when they arise. And if we think there is something that will help us to really drive forward our strategy and will benefit multiple parts of of that strategy, then, absolutely, that's something we would look at. But but, clearly, we need to be a little bit cautious in in how we invest that money, you know, in in this in this market.

21:15 That's great, Rona. Tim, thank you for addressing all those questions that came in from investors today. And, of course, the company can review all questions submitted today, and we will publish those responses on the investor meet company platform. But before redirecting investors to provide you with a feedback, which I know is particularly important to the company, Rona, can I please ask you for a few closing comments? Yes. Thank you. I'd like to, I guess, close with saying that it's not the year we wanted to, to report for sure. It was disappointing year, and and certainly, we're expecting that we will continue. While while it's been difficult, I think we've made a lot of progress on our strategic initiatives. We're continuing to look at, again, re reducing our complexity and really focusing on those areas that we see opportunities for growth when the market recovers.

22:07 And we're absolutely confident that we can continue to navigate, this current environment and are absolutely unequivocally positioned well to, to grow when the market returns. So in closing, we wanna thank you for your support. We wanna thank you for taking the time today to join us. And as always, we appreciate your feedback. Rona, Tim, thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations? This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of EMPRESARIA GROUP PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.