Interim Results

20 August 2024

Empresaria Group plc ("Empresaria" or the "Group")

Unaudited interim results for the six months ended 30 June 2024

Encouraging resilience in temporary and contract despite ongoing challenging market conditions

Empresaria Group plc (AIM: EMR), the global specialist staffing group, announces its unaudited interim results for the six months ended 30 June 2024.

Overview of the half year

·    Challenging market conditions continued throughout the first half of 2024 which impacted net fee income:

o  Overall reduction of 9% CC LFL to £25.3m

o  Permanent placement reduced by 21% CC LFL

o  Temporary and contract reduced by 1% CC LFL

o  Offshore Services reduced by 10% CC

·    Adjusted operating profit down 8% CC LFL, with reported figure down 23% to £1.0m, reflecting the impact of the reduction in net fee income, offset by the ongoing benefits of our continued focus on costs which delivered year-on-year reductions of £2.3m CC LFL

·    Adjusted, diluted loss per share of 1.2p reflecting the reduction in profit and the allocation of earnings to non-controlling interests

·    Adjusted net debt increased to £13.5m (31 December 2022: £11.1m) with headroom of £10.5m

·    Full year adjusted results are expected to be broadly in line with current market expectations³ although market conditions remain challenging

1    Adjusted to exclude amortisation of intangible assets identified in business combinations, impairment of goodwill and other intangible assets, loss on sale of subsidiaries, exceptional items, fair value charge on acquisition of non-controlling shares and, in the case of earnings, any related tax.

2    CC LFL - Constant currency and excluding exited operations.  Calculated by translating the 2023 results at the 2024 exchange rates and excluding the results of exited operations in Vietnam, China and Finland from both years.

3    The company understands that market consensus for adjusted profit before tax is £4.3m and for adjusted EPS is 1.65p

Chief Executive Officer, Rhona Driggs, commented:

"Challenging conditions have continued to impact recruitment demand in the first half of 2024.  Permanent recruitment continues to see the greatest impact while our temporary and contract business remained broadly stable, showing more resilient year-on-year net fee income performance.

We continue to prioritise our strategic initiatives and have made significant progress in building a more scalable and resilient business while reducing complexity across the Group.  Our focus remains on positioning the business to capture new growth opportunities, strengthening our sales capabilities, maximising our cross-selling efforts and diversifying our service offering, while maintaining rigorous cost control.

I am confident in our ability to navigate the current environment effectively and optimistic about our ability to rebound quickly when the market improves."

Investor presentation

In line with Empresaria's commitment to ensuring appropriate communication structures are in place for all shareholders, management will deliver an online presentation, available to all existing and potential shareholders, on the interim results for the six months ended 30 June 2024 via the Investor Meet Company platform on Tuesday 20 August 2024 at 12:00pm UK time.

Questions can be submitted pre-event through the platform or at any time during the live presentation.  Management may not be in a position to answer every question it receives but will address those it can while remaining within the confines of information already disclosed to the market.

Q&A responses will be published at the earliest opportunity on the Investor Meet Company platform.

Investors can sign up for free via: https://www.investormeetcompany.com/empresaria-group-plc/register-investor.  Those who have already registered and requested to meet the Company will be automatically invited.

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the UK version of the EU Market Abuse Regulation (2014/596) which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended and supplemented from time to time.

 - Ends -

Enquiries:

The investor presentation of these results will be made available during the course of today on Empresaria's website: www.empresaria.com.

Notes for editors:

§ Empresaria Group plc is a global specialist staffing group.  We are driven by our purpose to positively impact the lives of people, while delivering exceptional talent to our clients globally.  We offer temporary and contract recruitment, permanent recruitment and offshore services across six sectors: Professional, IT, Healthcare, Property, Construction & Engineering, Commercial and Offshore Services.

§ Empresaria is structured in four regions (UK & Europe, APAC, Americas and Offshore Services) and operates from locations across the world including the four largest staffing markets of the US, Japan, UK and Germany along with a strong presence elsewhere in Asia Pacific and Latin America.

§ Empresaria is listed on AIM under ticker EMR.  For more information visit www.empresaria.com.

Cautionary statement regarding forward-looking statements

This announcement may contain forward-looking statements which are made in good faith and are based on current expectations or beliefs, as well as assumptions about future events.  You can sometimes, but not always, identify these statements by the use of a date in the future or such words as "will", "anticipate", "estimate", "expect", "project", "intend", "plan", "should", "may", "assume" and other similar words.  By their nature, forward-looking statements are inherently predictive and speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future.  You should not place undue reliance on these forward-looking statements, which are not a guarantee of future performance and are subject to factors that could cause our actual results to differ materially from those expressed or implied by these statements.  Except as required by applicable law or regulation, Empresaria undertakes no obligation to update any forward-looking statements contained in this document, whether as a result of new information, future events or otherwise.

Finance and operating review

For the six months ended 30 June 2024, net fee income was down 15% on prior year on a reported basis and 9% down in constant currency and excluding exited operations ("CC LFL").  Adjusted operating profit was £1.0m, down £0.3m from prior year (down 8% CC LFL) reflecting the benefits of cost actions taken in 2023 and ongoing tight control over costs.

Challenging market conditions remain

The industry-wide weakness in demand and slow hiring decisions that we experienced in late 2022 and throughout 2023 has continued through the first half of 2024.  This impacted results across the Group with all of our regions showing a year-on-year reduction in net fee income.  Permanent recruitment has been most heavily impacted with net fee income down 21% CC LFL (reported figure down 27%).  Temporary and contract showed resilience with net fee income down 1% CC LFL (reported figure down 8%), while in Offshore Services, which delivered a record year in 2023, net fee income reduced by 10% CC (reported figure down 14%).

Our IT sector continues to be most significantly impacted reducing from 17% of our total net fee income in the first half of 2023 to 13% in the first half of 2024.  We are seeing this reduction across all of our regions and while the US and UK were hardest hit for much of 2023, Asia has also been significantly impacted in 2024.

Within our Professional sector we have seen mixed results. Our aviation operation has delivered solid growth as we diversify out of our traditional pilot contracting offering, while others have seen net fee income decline in line with the wider market.

Our Commercial operations in Germany and South America, where many of our clients operate in the supermarket industry supply chain, have performed solidly during the period and continue to be a strong profit generator for the Group.  Our Commercial operation in Germany was significantly impacted by a bad debt provision of £3.0m (excluding recoverable sales taxes) with a single client which is described in more detail in the regional commentary below and has been treated as an exceptional item in the interim results.

Managing our cost base

We continue to maintain tight control of our cost base, with administrative costs for the first half of 2024 down £2.3m CC LFL on the prior year, largely reflecting the run rate benefit of actions taken in 2023.  We are making limited investments in our sales teams and protecting our core consultant base to ensure we are well positioned for market recovery.  We continue to keep costs under tight control, but do not anticipate making any significant headcount reductions unless the market deteriorates further.

Continuing to deliver on strategic initiatives

We announced in March our intention to exit four of our smaller operations in markets or sub-sectors where we do not plan to invest as part of our focus on scaling our core sectors of Professional, IT and Healthcare, and reducing the complexity of the Group.  In the first half of 2024 we sold our loss-making Healthcare operation in Finland and closed our Professional operation in China.  We expect to complete the remaining two exits in the second half of the year.

We have streamlined our operating structures, including the consolidation of management structures to create greater sales and cost synergies and have completed the move to a more scalable and efficient model in our core sectors with dedicated sales and delivery teams.  In addition, we have rolled out enhancements to our common front office technology platform that are targeted at improving productivity across the Group.

Outlook

We expect weak hiring trends to continue in the second half of 2024 although we believe we have seen the bottom of the market and are starting to see some cautious positive movement in demand in some areas.  Our focus is on positioning the business to capture new growth opportunities and market share while keeping tight controls on costs and are confident in our ability to rebound quickly when the market improves.

Full year adjusted results for 2024 are expected to be broadly in line with current market expectations although market conditions remain challenging.

Regional Performance

Net fee income by region:

Performance in each of our regions is analysed below.

UK & Europe

In UK & Europe, revenue was down 1% on a reported basis, but up 3% CC LFL, with net fee income down 8% on a reported basis and down 5% CC LFL.  These results reflect a greater fall in permanent placements compared to a more resilient performance in temporary and contract.  Adjusted operating profit was up 44% primarily due to reductions in costs.

The UK continues to see subdued demand, particularly in our IT and Professional operations, and this is reflected in a 2% fall in revenue and a 9% drop in net fee income.  Permanent placement is the main driver of these reductions while temporary and contract has been more resilient.

In Germany and Austria, net fee income was in line with prior year as growth in our logistics business offset reductions elsewhere.  In January, we brought our operations in Germany and Austria under a single leader as part of our strategy to simplify our operating structures and to improve cross-sell and create synergies across these businesses.

During the period the Group sold its loss-making Healthcare operation in Finland and the results of this operation are excluded in the CC LFL measures presented.

In July 2024, weLOG, a significant client of our operations in Germany, went into provisional self-administration.  We remain in discussions with weLOG regarding the recoverability of outstanding amounts, which at 30 June 2024 totalled £3.0m (net of recoverable sales taxes) with a further £0.2m (net of recoverable sales taxes) in July 2024.  Under IAS 10 (Events after the Reporting Period) this is considered to be an adjusting post balance sheet event, and so, in the absence of any definitive information on recoverability, a provision for the full amount has been reflected in these interims and is presented in the income statement as an exceptional item.

APAC

In APAC, revenues reduced by 8% on a reported basis but increased by 1% CC LFL with net fee income down 25% on a reported basis and down 12% CC LFL.  The operating loss reduced from prior year predominantly due to cost actions.

Revenues and net fee income fell across the region reflecting the challenging market conditions.  The most notable exception to this was our aviation operation which delivered net fee income growth of more than 20% in constant currency reflecting success in diversifying revenue streams outside of our core pilot leasing offering and into engineering and permanent placement.  Elsewhere, our IT sector was the most significantly impacted with falls in both permanent, and temporary and contract net fee income.  Japan was most significantly impacted, with net fee income down more than 20% in constant currency, while reductions were also seen in Singapore and the Philippines.

The region continued to deliver an operating loss, although this was reduced from prior year reflecting cost actions that offset net fee income reductions as well as significant reductions in losses reported in aviation and Australia.

During the year we closed our small Professional operation in China and these results are excluded from the CC LFL measures presented.

Americas

In the Americas, revenue was down 5% on a reported basis, but up 8% in constant currency, while net fee income was down 24% on a reported basis and down 16% in constant currency.  The reported operating loss increased slightly on last year due to currency movements.

Results for the period are driven by our US operations which saw a 50% year-on-year drop in net fee income resulting in an increased loss for the period.  The IT sector continues to be extremely challenging in the US and we are yet to see any sustained signs of improvement.  Costs have been cut as far as practical to limit losses while protecting the ability to recover.  In Healthcare we saw positive momentum as H1 progressed and have a solid pipeline for H2. 

Our Commercial operations in South America showed strong growth in net fee income of more than 10% in constant currency.  Due to currency movements the reported net fee income showed a small fall but reported profits increased year on year. 

Offshore Services

Offshore Services delivered a fall in reported revenue of 1% (up 3% in constant currency) with reported net fee income down 13% (down 9% in constant currency).  Revenue reflects some low margin temporary and contract business which was not present in the prior year.  Excluding this, revenue in the core offshore services offering was down 6%.

Offshore Services showed strong resilience last year, delivering record net fee income despite market challenges as they benefited from the full year effect of the strong growth they delivered in 2022.  At the end of 2023 and the start of 2024, UK Healthcare demand fell significantly in response to the NHS targeting reductions in agency spend.  Demand has stabilised in both the UK and US but remains muted reflecting the wider conditions for the recruitment industry where the vast majority of our clients operate.  We see opportunities to diversify our client base, particularly in our accounting and finance offering, to help offset this exposure.  The results reflect some additional pressure on margins with inflationary rises in the cost base and greater challenges in passing these increases on to clients in the current economic environment. 

Financing

Net finance costs for the period were £0.8m (2023: £0.8m) with the impact of higher interest rates and higher average levels of net debt in the period offset by improved cash efficiency.

Net cash inflow from operating activities was nil (2023: £4.6m), reflecting trading for the period and the impact of an exceptional bad debt provision recognised in the period which was partially offset by a net working capital inflow across the Group.

The Group sold its Finland based Healthcare operation in the first half of 2024 resulting in a £0.4m cash inflow.  Capital expenditure was £0.4m (2023: £0.9m) significantly reduced from the prior year which included infrastructure investment to support growth in Offshore Services.  The Group's dividend to its shareholders resulted in a £0.5m outflow (2023: £0.7m) and dividends to non-controlling interests were £0.3m (2023: £0.4m).

The Group has a programme of purchasing shares and transferring these into the Employee Benefit Trust in order to build shares for the part-settlement of share options in order to reduce the dilutive impact on exercise.  As there are currently no outstanding, vested share options and the Employee Benefit Trust holds 0.8m shares, no purchases were made in the period (2023: £0.1m).

Adjusted net debt (which excludes £0.2m cash held in respect of pilot bonds and does not include lease liabilities recognised under IFRS 16) was £13.5m as at 30 June 2024, an increase of £2.4m from 31 December 2023.  Average month end adjusted net debt during the period was £10.9m (six months ended 30 June 2023: £7.9m).

As at 30 June 2024, the Group had financing facilities totalling £42.1m (31 December 2023: £50.8m).  Excluding invoice financing, undrawn facilities reduced to £10.5m (31 December 2023: £17.8m) reflecting the higher level of net debt alongside an improvement in cash management enabling certain facility limits to be reduced.

The Group's revolving credit facility covenants are tested on a quarterly basis.  The covenants, and our performance against them as at 30 June 2024, are as follows:

Dividend

In line with prior years, the Board is not recommending the payment of an interim dividend for 2024 (2023: nil).

20 August 2024

1    The income statement includes costs in respect of the impairment of trade receivables totalling £3.0m (2023: £0.3m) of which £nil is included with administrative costs (2023: £0.3m) and £3.0m is within exceptional items (2023: nil).