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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon, and welcome to The Empresaria Group plc investor presentation. [Operator Instructions]
Before we begin, I would like to submit the following poll.
I would now like to hand you over to CEO, Rhona Driggs. Good afternoon to you.
Good afternoon, everyone, and thank you so much for joining today on the presentation for our yearly results. So a 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 H2 starting 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 GBP 6.1 million from 31st December 2021. Our dividend has increased by 17% to 1.4p. 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. The Board strengthened in early 2023 with the appointment of 2 new nonexecutive directors, and we remain well positioned to realize our ambition of delivering GBP 20 million adjusted operating profit in the medium term. Going to our operating highlights. We saw, again, very strong growth in our Offshore Services business. Headcount all increased more than 2,500, which was up 27% from the 31st of December 2021. Net fee income was up 75%, profits up 73%. We made -- in the half 2 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. We saw a very strong demand in the U.K. driven by healthcare and our healthcare plans. And we saw a slowdown in half 2 in the U.S. demand, primarily driven by IT. In the U.S. business, we support a lot of IT recruitment. And as we've all probably been reading in the news, the technology layoffs really have impacted us. Now 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 U.K. Ongoing benefits from diversification, we'll talk about a few points. So again, we mentioned the Offshore Services piece. We strong growth in Professional and IT in APAC. And we also saw strong growth in Professional and our Logistics business in the U.K. 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 year for us. Those businesses outweighed expected drops in healthcare 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 are 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, and we will complete the final businesses by the end of 2023. We saw some early success in delivering RPO projects, particularly in the APAC region, which 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. We are -- as part of our road map to GBP 20 million, we are launching the Professional sector operations in the U.S. So currently, our U.S. businesses are healthcare 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 hired a team and we have an office. So that is due to launch here in the very near term. We also have implemented a go-to-market branding strategy alongside that. So as we look at our blueprint and our investment in our high-growth sectors, we're really focused 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 blueprint for go-to-market when we look -- talk about future openings such as Japan or Germany in the Professional space, this U.S. 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 offering. So these are service offerings that are outside of the traditional scope of temporary and permanent recruitment. They could include RPO services, SOW services, payroll services and along with regional and global sales, the goal and the aim of Empresaria Solutions is to not only offer additional value-added services to become more sticky with our clients, but in addition 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 2021. We now have 105 headcount at the end of December 2022, and that will continue to be a growth area for us. On the increasing diversity of profits, again, the priorities are really that we set out our progress in 2022 was 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 at a group-wide level. And finally, focus on growing temporary and contract IT in the U.S. 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 U.S. for IT. On productivity and efficiencies, we're, as I mentioned, continuing to implement the front office platform focus on maximizing the post-implementation benefits of that system. We are really excited that we are now able to see data across the group for the brands for the businesses that are currently on that technology and 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. 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 have made a good, solid penetration, and we're looking to even further that in the U.K. with the creation of a delivery center to service U.K. MSP clients. This will enable us -- this is a market that we traditionally have not gone after because the margins are low and the competition tends to be -- multiple competitors competing against requisition, so speed and of course, cost and 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 the IT side of things. 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 are not actively pursuing any sort of external acquisition or M&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 some time in the future. Now I'll turn it over to Tim for the financial review.
Thanks, Rhona. So I'll just run through the numbers. Rhona has picked up some of these, so I'll just pick up on the other ones. So revenue is flat year-on-year, and that really reflects the mix between temp and perm, so we're seeing strong perm growth, but temp has dropped back slightly. So revenue is flat, whereas our net fee income is up 10%. Adjusted operating profit is also up 10%. Adjusted profit before 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 GBP 6.1 million and is now at GBP 7.9 million. That, in 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 temp and contract, which has a higher working capital requirements. 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, as we are very comfortable with our level of net debt. Headroom remains strong, which has increased by GBP 5 million to GBP 17.9 million. And as we've shown, particularly during COVID, we do have a proven balance sheet, so in the event of a downturn, we've shown that our working capital lines 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 we're now trading over the next -- last 2 years, although our profits have recovered and working capital is recovered, we have now there level of debt down to that level of sustainable position. Moving on to the operating review. So firstly, just an overview, 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 70-30 ratio as we move forward. And then on the sectors, this chart reflects the strong growth in Offshore Services, the strong performance in Professional, expected decrease in healthcare 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. Moving on to the U.K. and Europe. We did see mixed performances in this region. The U.K. was generally fairly strong. NFI was up by 2%, and we did see double-digit growth in the profit. Really, this was driven by Professional business because actually, our U.K. IT performance wasn't as strong as we would have liked. And we are putting in place corrective actions in order to improve this, including a focus on the U.K. market. Although our business is U.K. 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 significantly 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 roles in manufacturing entities. If there are people who are sick, they can't go into work and that impacts our margins. In the Finland, we've seen the expected reduction following the wind down of COVID-19 related activities such as vaccinations and there have been some significant changes to public sector healthcare, 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 did see weak performance in Australia, where NFI fell, and particularly, this was driven by a fall in the temporary and contract revenues, and this operation did make a loss in the year. However, we have taken action to start 2023 to position this business to get back to where it should be. 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 1 of the drivers behind some of those record growth, particularly in Indonesia and Philippines, where we're seeing 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 healthcare following the strong COVID-19 results last year that led us having a record year. And then also IT, which in the first half of the year, we saw a very challenging, very competitive market where counteroffers were the norm and we were -- approximately 40% of all offers were countered and lost as a result. This really changed in the second half where we've seen the high-profile layoffs, so a number of IT operations, and this did impact some of our key clients where we saw demand drop off. And as a result, we saw a fall in year-on-year net fee income in IT in the U.S. LATAM was stable, NFI stable, profit 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 to what this business does. We see an extremely strong set of results in 2022, and this was a carry-through of a strong momentum in 2021. During the year we continued to see headcount grow up by 27% between the beginning and the end of the year. This was driven by significant growth from our U.K. clients, primarily in the healthcare sector and the number of billable seats rose by 2/3. In the U.S., we did see a slowdown in demand where we have most of our clients are operating in the IT space. This was particularly in the second half. And so we did see a fall in the number of billable seats at the end the year. As Rhona mentioned, our new operation in the Philippines is well and truly up and running, is now up to 105 headcount. And we have made significant investments in infrastructure and that's both in terms of headcount capacity, office, IT, et cetera, and to support the future growth of this operation. I'll now hand you back over to Rhona.
Thank you, Tim. So on to the update the road to GBP 20 million. Some of you may be familiar that we posted at Capital Markets Day in October to outline our ambition and our road map to double our operating profit in the medium term. And first, we want to focus, again, high level, our 3 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 maps out and I'll talk specifically and give a little bit more color on the various pillars. So on Pillar 1, we are looking to build scale and accelerate growth in our high potential sectors. And what that really looks like is if you look at the current landscape of where we operate, we currently offer, as an example, professional recruitment services in just 2 the 6 of the largest staffing markets globally despite having operations in 5 of these. So Professional is an obvious choice for us to start and really try to accelerate our growth and really providing more scale in key markets for us. So as mentioned, we are launching in the U.S. first and the future road map, it will include Japan, along with Germany and potentially Australia. The second pillar is really growth in new services, which is Empresaria Solutions. And again, 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 Offshore Services, which is, again, a key part of the group 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 the markets recover, particularly in the U.S. market and with their continued growth and success in healthcare in the U.K., we see a very bright future for Offshore Services moving forward. If you just bear with me a moment, we're going to actually pull up the appendixes here and cover off a little bit of Offshore Services and what that is, because it is such a core and important differentiator for the group. Just for those that are not familiar, our Offshore Services region operates from 3 locations, 2 in India and 1 in the Philippines. We provide a wide range of services to our clients, who are primarily based in the U.K. and U.S., and our clients are in the staffing sector. So primarily across a wide range of disciplines including healthcare, 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 can be purely only sourcing, it could be screening, it can be all the way end-to-end recruitment for the staffing sector as well as middle office, compliance, credentialing, and back office. This is also, if you look at the diversity within our Offshore Services business as well, again, we've got multiple service lines and multiple offerings. We're able to operate across multiple disciplines across the board, whether it be really any kind of staffing at all and primarily in 2 of the largest staffing markets being the U.S. and the U.K. The clients typically pay on a per seat basis, and they will have a dedicated team. So if you picture it. It is like having an extended team of your own, but sitting in another location. So that -- really the success of working with Offshore Services really comes into really treating them as 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 people as business demands increase training, marketing, so there's 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 part of their extension or an extension of their own team here in either the U.K. or the U.S. And then finally, on the outlook. So this is a tricky one. We have to say that we do look ahead to 2023 with caution, given the wider economic environment. A couple of things to note. We have seen softening in demand at the end of 2022, that has continued into early 2023. The IT slowdown continues with many high-profile layoffs, as you're probably reading about in the news, in particular, in the U.S. market right now. And the other thing that we're feeling right now is a bit a lag or a stall, where you have on the client side of things, the client is sort of, they have a need, they want to 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 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 1 that they're in. However, I will note that vacancy levels across our markets remain above pre-COVID levels. And when you look at the incoming job orders, and we're looking at this probably weekly at this point, when you're looking at the incoming job orders across the group, it's really a steady demand we're seeing. So we're not seeing any major dips. And we have to remember that despite 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. We also have a proven ability to successfully navigate difficult environments. If we think back to how we navigated COVID, our diversity certainly was a factor in being able to successfully navigate COVID as well as our ability to be agile and certainly today when we are a much more joined-up group than even we're back in 2020. And finally, we will, regardless of what's happening in the wider economic environment, remain focused on our ambition of delivering GBP 20 million adjusted operating profit in the medium term. Now I will turn it back to Alex.
[Operator Instructions] Rhona and Tim, as you can see, we have received several questions throughout today's presentation. If I may hand over to you for the Q&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.
We've had a couple of questions in. So the first 1 is, what's the time to establish fresh operations in the major markets we've talked about? So we typically have really a 3-year plan to start new operations. So the first year is really about building base, building the team, building the client base. Also, you would expect to make a loss in that first year. And then the target is to move through breakeven and then target profit in that third year. So that's broadly speaking, the profile we look for. But obviously, each market is different, so it'll be different to accelerate the growth as fast as we can, but within the 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. So I think both of us will probably tag team 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 20 businesses on 20 different front office operating systems. Some of them were homegrown. Some of them were off the shelf and some of them were quite frankly, really outdated and some were manual. Now as we look to the pieces of the business that are now implemented and that is again about 60-plus percent, we're going live with another 1 here in just another month. Now we have the ability to go in and look real time at fill ratios, job openings, CVs, the business analytics that you need to be driving on a weekly, if not daily basis. 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 -- we're a global company, why not maximize the opportunity to harness the power of our global candidate database. So that is something that we hope to have an extremely positive impact on our business going forward. Tim, if I am missing anything on that?
No, I think that covers it. I mean, I think the overall point 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. Putting in this technology platform really is step 1, and we'll be looking to leverage the benefits of it, but also looking to plug in the extra features and the additional benefits we can get as we move forward over the next couple of years. I do just want to revisit the first question, and one thing which I didn't mention, I'm not sure if Rhona went into it when she went through 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 1 of the things that will really help us get those moving more quickly.
That's great. Rhona and Tim, thank you for addressing those questions from investors today. And of course, the company will review all questions submitted today and publish responses where appropriate to do so. But perhaps before [indiscernible] investors to provide you with a feedback, which are particularly important to you and the company. Rhona, can I please ask you for a few closing comments?
Yes, sure. So first of all, I want to thank you for your continued support and taking the time to join us today. I will say that we are -- again, given the 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. 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 again, our commitment is to remain focused on our ambition of delivering GBP 20 million adjusted operating profit, and I want to thank you again for your time and support.
That's great, Rhona and Tim, as well. Thank you for your time today and for updating investors today. Can I please ask the 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, I would like to thank you for attending today's presentation. That concludes today's meeting. Good afternoon to you all.