Empresaria Group (LSE:EMR) — Interim Results Webinar

0:03 Good afternoon, ladies and gentlemen, and welcome to EMPRESARIA investor presentation relating to the half year results to August 23. Thank you very much. Indeed, I'd now like to hand over to CEO, Verona Driggs. Hello, welcome, and thank you for attending our twenty twenty three half year results call. Let's start with the quick overview on the first half. We have experienced challenging market conditions from H2 twenty twenty two that continued into 2023,

0:33 which has impacted our net fee income. Our net fee income reduced 9% year on year against a strong comparator. Offshore services was up 15%, permanent placement down 24%, and temporary and contract down 8%. Adjusted operating profit was down 71% year on year, reflecting a higher starting cost base following 2022 investment and inflationary pressures. This also comes off the back of a strong h one last year. Measures to improve and manage cost base were taken in q two with benefit that will be started started to be realized in half two.

1:19 Our adjusted diluted loss per share of 0.8 p reflecting the strong contribution from offshore services where there's a 28% non controlling interest. Our adjusted net debt increased slightly to 8,700,000 from 7,900,000 end of twenty twenty two with headroom increased to 18,400,000. Key themes, which I will go into on the next slide, are really challenging market conditions across the board, managing our cost base, continued strength in offshore services, and continuing to deliver on our strategic initiatives. So the trends we saw and started to see in 2022 in the last half continued into 2023.

2:10 We haven't seen any significant or sustained signs of improvement. Client and candidate confidence is low, and we've had a lot of false starts. So, hopefully, again, if this if there's no significant signs of improvement, we will we will continue to watch and manage our cost base. Our our higher cost base at the start of '23 compared to h one twenty two was due to investment in headcount to meet demand in in earlier in 2022 combined with inflationary impacts. Measures to reduce costs again will be realized in h two. Continued strength in offshore services, our net fee income was up 15%, profit up 6%.

2:58 We continue to invest in infrastructure to enable further growth. Strong growth is driven by health care demand in The UK, and there's been a slowdown in The US in offshore services seen starting in h two of twenty two that continued into h one of twenty twenty three. We're continuing to deliver on our strategic initiatives. We recently announced the launch of The US professional brand in in The US. Sorry. That brand has launched, and that is organic growth that we are projecting for that business. That is something that we have had planned on our road map. We have launched it and are seeing early signs of success with leveraging current and existing clients in The US market.

3:51 Planning for EMPRESARIA solutions launch is also progressing. EMPRESARIA solutions, as a reminder, is an umbrella of services that will cross multiple sectors and regions across the group with more solutions beyond just the transactional permanent and temporary business.

4:18 The other thing to note on the EMPRESARIA solutions is that we are planning, and you'll see this in in the next slide on our progress slide, that we are planning on a soft launch in 2023 that will include us actually harnessing and leveraging our internal capability with our offshore services team to deliver into MSP clients in The UK market. This we've already secured a client. We are already working with a very large client that is bringing us in into thirty thirty eight new client new client accounts in The UK. So this is really where the start of EMPRESARIA solutions, and we will continue to scale into other areas such as RPO, which we're already doing quite successfully in the Asia Pac region, as well as other services including statement of work, and more importantly, and an equal, I say I would say almost more importantly than

5:19 anything is enabling us to cross sell again across regions and across sectors with providing transparency to the client and not having them have to deal with multiple buying entities.

5:36 Our strategy update, I covered a couple of the the progress, and I'll focus just on the right hand side of this slide here on our progress. Again, US Professional has launched. EMPRESARIA solutions will launch. And then the Philippines hub, we had planned to continue expanding in The Philippines, but did not grow in the period due due to lower US client demand. We have the growth of the temporary contract remains a priority for us across the the group, but dependent on market recovery at this point. A further implementation of our front office system was completed in h one in our Germany personal business.

6:23 Reporting and onboarding solutions have been identified with implementation to start in half two, and the delivery center will coincide with launching the the EMPRESARIA solutions in into The UK market. And, that will be powered by our offshore services delivery team. We will continue to and have continued to invest in offshore services infrastructure in half one. Now turning it over to Tim to give you the financial review. Thanks, Rana. So just turning to to the financials. Rana's talked through most of these already, but just touching a few other pieces. So revenue was down 3% in the period, so that compares to the 9% fall in net fee income.

7:12 And that reflects the mix. So, you know, the the the greatest drop seen on perm, whereas the stem didn't fall by the same amount. So that's a a mixed point, and that's why revenue is not down by as much. Overall operating profit down 71% and then adjusted earnings and loss per share moving to a to a small loss of £0.8 and that reflects the noncontrolling interest in offshore services, which has performed well in the period. Turning to the balance sheet. Adjusted net debt has increased slightly to $8,700,000 That reflects some of the cash outflows we typically see in the first half of the year. So dividends, tax is normally first half weighted, and then we also had CapEx. We also had a reasonably significant movement due to FX in the period. That's been 800,000 due to strengthening of sterling.

8:03 Hedging remains strong. We've done a lot of work in the period to improve our efficiency with cash in order to help manage the net finance costs, which of course have been increasing due to rises in interest rates and that has helped to improve the headroom position. Our balance sheet continues to show how resilient it can be in the face of really any market conditions. So moving on to the operating review. Shape of the group has changed slightly during the year reflecting those those trading conditions. So offshore services now increased to 23% of net fee income. Our temp to perm ratio has increased to 62 to 38, and that flipped through the weaker perm. That's rather than growth in temp.

8:50 And then by sector, we've seen falls in professional and IT as a proportion of the group with offshore and commercial both growing. In The UK and Europe, net fee income was down 13%, adjusted operating profit down 55%. The UK saw the weakest results in the period and net fee income there was down 25%, again driven by permanent drops in permanent placements and the largest impacts we've seen in our IT and professional businesses. Our results in Germany were much more solid. We did see growth in our logistics operation, which helped offset some smaller reductions elsewhere. Turning to APAC.

9:38 Obviously, a theme for the first half of the year is is, you know, the drop in IT, but actually when you look at technology companies, the impact is wider because, obviously, they recruit more in just IT roles. And in APAC, we do work with a lot of technology companies, so we're seeing drops across both IT and professional. So overall, net fee income was down 8%. We have seen some individual challenges. Thailand's situation politically is impacting demand there with companies very reluctant to hire until that is resolved.

10:06 Singapore and Australia have both had poor performances in the first half and contributed losses to the results. We've taken a lot of actions in both of those to resolve those situations. We have seen some strong performances. Both China and The Philippines showed some very good growth in the first half of the year. And we have started to see some improvement in aviation. This is a relatively low gross margin business, so that's why revenue for the region is high or up, sorry, by 13% because it's high revenue but low margin. So the impact on net fee income is more modest and that business does still remain loss making. Turning to The Americas. The results here really are driven by the situation in The U. S. So net fee income down 26% and the adjusted operating loss moving to a loss of 300,000.

10:57 IT, we obviously saw significant falls in demand in the second half of last year, and that's continued into this year and been exasperated by the Silicon Valley Bank collapse. We have quite a lot of clients who are start ups using SVB for financings that significantly impacted demand from those. Healthcare has come down obviously from its COVID highs. Demand and pay rates have fallen significantly over that time. In LatAm, we are seeing some solid increases in net fee income and profits, and our retail outsourcing offering remains in demand. That is performing well.

11:36 Then moving to offshore, we've seen net fee income rise by 15% and adjusted operating up by 6% to reflect the investment that we've been continuing to make in that business. Our UK health care clients are continuing to grow, so we've added 17% more billable seats with those clients at June 30 compared to December 31 last year. US continues to be challenging, so that that wider weakness in IT demands impacting our clients, which in turn is is impacting what they require from us. We've seen that 11% fall in middle of seats in the period. Now back over to Ronald for the outlook. Thank you, Tim. So on the outlook, current market conditions expected to continue to impact the rest of this year.

12:22 We're continuing to keep costs under review, maintaining the resources required to maximize opportunities as and when confidence returns in the market. The drivers that will benefit when market confidence improves still remain. There's relatively low unemployment and skill shortages. I I will say that right now, you know, both candidate and client confidence that not only are we not seeing the demand on the client side, but candidates are more reluctant to make a move with the uncertainty in the market. That remains a challenge. However, when that changes, again, I think the upturn will be robust. We are making progress on our key strategic actions to deliver growth. Given current market conditions, we continue to review operational and investment priorities to ensure the group is best placed to realize our medium term ambition.

13:15 I'd now like to turn it over for questions. That's great. Rona, Tim, thank you very much indeed for updating investors this afternoon. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. I'd just like to remind you that recording this presentation, along with a copy of the slides and the published Q and A, can be accessed via your Investor Meet company dashboard. Renata, as you see, you've had a number of questions from investors this afternoon. I wondered if I may just hand back to you and ask you to read out the questions and, where appropriate, to give response. Thank you. Yep. So we we've got a few questions in. So firstly, how optimistic are you about the prospects for LMA recruitment, and how big an opportunity is this for the company? So I'm I'm I think it's probably a reference to to the rebrand and the launch in The US. Yes. Yes. So very optimistic about LMA recruitment. Not only we're we're taking the opportunity to really create a global brand with LMA, and so that's exciting. There's already some cross selling that's happening not only just in The US, but but amongst the various LMA brands in The UK and in Singapore.

14:28 So, I I mean, it's it is organic growth, which is much slower than acquisition, but I'm very optimistic that, you know, we have now coverage points, particularly in The US where we had IT and health care, but nothing in between to really be able to expand out our service offerings and get much more sticky with our client base in that market. So second question, how much room do you have to reduce costs further if conditions continue without compromising the customer offering? So I you know, we are trying to protect, you know, where we can and, you know, it makes sense to for example, in The US, we have already cut to the point that we can't cut anymore. We need to ride it out. But in other markets, we do have other levers to pull if if need be. We just didn't wanna go you know, we went pretty hard on the cost, but we are you know, we're we're still in this period of evaluation, but we do have the ability to to pull levers and to pull them quickly if need be.

15:36 And then oh, actually, we've got possibly two more questions. So what where are your priorities operationally over the next next six months?

15:45 Our priorities operationally are really, again, going back to our our road map and really the the pillars in our road map of really scaling scaling when the market returns, of course, the the tech and IT market, which we still feel is a really good market to be in, as well as the professional that that we've already mentioned. In addition to that, the EMPRESARIA solutions is really gonna help us hopefully gain some traction and also be able to deliver it into a whole another whole other pocket of clients that we haven't had access to in the past. What was the latter part of the question? I don't know because the question has been deleted by the The question not deleted. Okay.

16:31 Okay. So it was the operating priorities for this next six months. Yeah. And and I would say, again, the operating priorities are to get these you know, the businesses that are are underperforming right now to get them to the point where they are poised for growth and ensure that they have the right operating model. We are aggressively moving more into a one eighty delivery and sales model. We are laser focused on building our sales capabilities across the group right now, and that is probably the key priority over the next several months. So there's another question here about just highlighting that we don't own a 100% of all the businesses and, you know, perhaps there's a perception from some commentators that that's a that's a disadvantage of when we have funds to, you know, become a 100% owned structure where management is in incentivized through options.

17:28 And so I think it's probably for for those who are maybe less familiar with the recent ex good company. I mean, we don't operate a management equity scheme anymore. The group used to issue equity in subsidiaries to to management as a means of, you know, incentivizing them to grow those businesses. That's not something we've done for for a little while now. You know, that said, there are still some legacy either management or other minority shareholdings in place. I think where the opportunity arises, we we do look to to buy those in, and and we have done so over the last couple of years. I think, obviously, that's not always possible. So, yes, yes, our preference is is to own a 100% of of subsidiaries, but clearly, that needs to to work for for both parties in any transaction to to buy those bits in.

18:17 And then one last question by the looks of it. So do you see any sectors and or geographies recovering quicker than others? I I I said that, you know, earlier, I was having a conversation with someone, and I I suggested that COVID was much more predictable than this market is right now. So at the moment, you know, it it's really hard to say. I don't know. I I think there's possibility in Asia, but even even our our business our IT business in Japan has struggled this this year. So I think it's it's really hard to say at this point in time. So I I I don't think I'd comment any further other than we just we really don't know.

19:05 That's great. Rona, Tim, thank you very much indeed for answering all these questions, and thank you everybody for your engagement this afternoon. Rona, Tim, I know that investor feedback will be important to you, and I will shortly redirect those on the call to give you their thoughts and expectations. But I wonder if I may, before doing so, if I could just ask you for a few closing comments, and then I'll ask investors to give you their feedback. Yes. Sure. Thank you. While we are disappointed with the start to 2023, we are making progress on our key strategic actions to deliver growth. And we are optimistic that we can and we will capitalize on our opportunities when the market conditions return. And I wanna thank you all for taking the time to join us today and look forward to speaking with maybe some better news next time.

19:51 That's great. Rona, Tim, thank you once again for updating investors this afternoon. Could I please ask those on the call not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. 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.