Financial year 2016 (FY16) was another successful year for the sustainable, future growth of the ERM business, with strong overall performance despite the more difficult market conditions.
FY16 was a challenging year, against a backdrop of a large reduction in oil and commodity prices and continued slowdown in China and other global economies. At constant exchange rates, our net consulting revenue decreased by 2 percent and our trading profit decreased by 8 percent. These results represent a strong overall performance given the more difficult market conditions, especially in the second half of the financial year following the decrease in the price of crude oil to $30-$40/bbl.
Trading profit decreased by more than consulting revenue as a result of continued investment in the business. We continued to run the business in FY16 at an overall trading profit margin of 15 percent (FY15: 16 percent). Unfortunately, we had to cut costs in some areas where appropriate – particularly those geographies exposed most significantly to a slowdown in oil and gas activity. However, we maintained significant investment for medium-term growth in other areas – for example, growth sectors such as Power, Chemical, Technology, Media and Telecommunications (TMT) and in our Sustainable Safety Performance and Information Solutions businesses. We also generated strong operating cash flow, which allowed us to reinvest cash into further acquisitions (see below).
We achieved a number of notable successes during FY16 in terms of positioning the business for medium-term sustainable growth:
- New equity investors: We completed a management buy-out on 31 July 2015, with our new equity investors being the private equity arms of OMERS Administration Corporation (“OMERS”) and Alberta Investment Management Corporation (“AIMCo”). The transaction, valued for an enterprise value of US$1.7 billion, enabled ERM's employee shareholders, the ERM Partners, to re-invest in the business alongside OMERS and AIMCo, highlighting the Partners’ continued commitment to ERM and the confidence they share in the long-term outlook for the Company, as well as their excitement in working with our new external investors. ERM Partners own 41 percent of the equity of the Company. We ported our debt package from the May 2014 refinancing, which allowed us to continue debt funding the business without any disruption. OMERS and AIMCo will support ERM’s management team to develop the business, both organically by further increasing market share through offering innovative new services in expanding international markets, and also by strategic acquisitions in what remains a large, but still fragmented, sector.
- Partners: Partners in ERM are our senior management level leaders. We hired 40 Partners during FY16, which provides us with a strong platform to grow the business over the medium term. We also promoted over 20 Partners from our Partner-in-training program and brought in two Partners as part of the acquisition of rePlan.
- Acquisitions: We continued to make strategic in-fill acquisitions. In August 2015, we acquired rePlan, which is based in Toronto, Canada, and provides social assessment, advisory and management services to natural resource companies and financial institutions around the world. In March 2016, we acquired JSC, which is based in Harrogate, United Kingdom and is a leading regulatory affairs consultancy providing expert independent advice in the area of agrochemicals, biocides and general chemical legislation. We are delighted to welcome the employees of both businesses into ERM.
Our marketplace continues to grow and offer the Group considerable opportunities. Our strategy is to continue to grow and build our presence in major markets, through organic growth and targeting specific acquisitions where appropriate to broaden our geographic and service offerings. Our global expansion focuses on building expanded relationships with our clients and servicing their needs in more regions and across more service areas.
In summary, FY16 was another successful year for the sustainable, future growth of the ERM business.
View the Group's financial performance by region from FY11 to FY16 at actual foreign exchange rates