9th September 2010

Analyst: Derren Nathan
Email: derren.nathan@gecr.co.uk
Tel: 0207 562 3371

Empresaria Group, the multinational specialist staffing group, today reported a strong set of results for the six months to 30th June, delivering double digit revenue and net fee income (NFI) growth across all three of its reporting regions. Total revenue increased by 20% to GBP108.2 million and NFI increased at a faster rate of 29%, underlying the margin benefits associated with the company's growing scale and maturation of early stage businesses. These results are not distorted by any acquisitions and demonstrate that all of Empresaria's divisions are growing organically. Adjusted operating profit was GBP2.6 million compared to a loss of GBP0.3 million in the first half of 2009. This equates to adjusted earnings per share of 1.9p.

These results highlight the breadth of Empresaria's international diversification and further development of temporary staffing business. 66% of the Group's NFI is now derived from outside of the UK, up from 61% in 2009. The company's largest market is Germany. Here the company has exposure to a relatively strong economic recovery and a labour market that was de-regulated in 2004 in a way that allowed firms, for the first time, to hire temporary rather than permanent staff. This structural change is yet to fully work its way through the economy and is a key driver of an ever increasing demand for the German business. In the 6 months to June 30th the company reported a rise in revenue from Continental Europe of 33% to GBP47 million, and an increase in NFI of 39% to GBP10.4 million.

The increase in NFI margin was encouraging, up 14 basis points to 22%. Whilst overheads did increase by 13%, this was at a slower rate than top line growth and is testament to the Group's focus on cost control. During the period, headcount increased from 760 to 840, with most of the growth in Asia where the company is expanding aggressively. The improvement in trading and cash flow has in turn strengthened the balance sheet. Net current assets more than doubled to GBP4.8 million year on year and net debt was reduced by 33% to GBP7.6 million.

Whilst Germany is currently an excellent place to do business we see an increasing contribution from Empresaria's "rest of the world" businesses going forward. Empresaria now operates from over 100 branches in 17 countries. In Southeast Asia in particular, many of the units are less than three years old, and the company states that these are now making a material financial contribution. For example in Indonesia NFI increased by more than 100% during the half year. The company is experiencing increased demand for its Recruitment Process Outsourcing services in India and its e-Learning capabilities in Southeast Asia. These revenue streams have good long term growth potential, and have the possibility of being cross sold worldwide.

Empresaria's well diversified portfolio of staffing companies offer some protection from localised economic problems and variances in the regional rate of economic recovery going forward. The company has exposure to the high growth profiles of emerging markets. Furthermore its UK business no longer has direct exposure to the soon to be ravaged public sector. Therefore although the nature of recruitment means that earnings visibility is limited, we believe the company is well positioned to take advantage of an economic resurgence, or to weather any storm.

The company reports that positive trading has continued into the third quarter and that full year results are expected to be above current market expectations. Empresaria's results are usually seasonally skewed in favour of the second half of the year. Our forecasts have been at the upper end of expectations but nonetheless we believe there is scope to increase our 2010 pre-tax profit forecast to GBP6.2 million ( from GBP5.9 million) and our expected earnings per share to 6.3p ( from 6.2p). The company does however urge caution over the strength of the economic recovery going forward and we leave our 2011 profit forecast unchanged. However the impressive first half performance increases our confidence in the company's robustness and we continue to value the company at 11 times 2011 earnings, or a target price of 78p. The shares are a buy.

Forecasts table

 ** The SF t1ps Smaller Companies Growth Fund, managed by another subsidiary of Rivington Street Holdings the owner of GE&CR, owns shares in Empresaria Group.