After resilient performance in financial year 2021 (“FY21”), financial year 2022 ("FY22") was an exceptional year. At management budgeted exchange rates, our trading net revenue increased by 25% during FY22 and our trading profit increased by 29%. The pandemic continued to provide some challenges to our business, particularly in the Asia Pacific region, but we were able to reduce and minimise the disruption from COVID-19 as nearly all ERM locations moved towards high vaccination rates.
We saw growing demand for ERM’s services during FY22 and an unprecedented opportunity to influence the global sustainability agenda. We reached record levels of both backlog and weighted pipeline with our continuous investment in our Group Key Client program, our increasing diversification into Power, Chemical and TMT sectors and our longstanding recurrent relationships with a large and diverse blue chip client base. Our highly diversified and balanced business model across sectors, clients and geographies allowed us to gain market share in a rapid growing market environment.
We continued to maintain significant investment for medium-term growth in key areas, including technology enablement of some of our services, and in growth sectors such as Chemical, Power and Technology, as well as the development of our client-focused service offerings. Increased stakeholder pressure is forcing corporates to view sustainability and ESG as a way to create value and gain competitive advantages. We have invested in developing offerings in this space by making key hires and via acquisitions. The seven acquisitions made during FY22 have materially strengthened and broadened our capabilities, particularly in the Low Carbon Economy Transition (“LCET”) space.
The Russia-Ukraine conflict is bringing additional turbulence and uncertainty to the global economy. We have watched as events escalated and are now impacting millions of people. Our primary focus has been the safety of our Ukrainian colleagues and their families, as well as our colleagues based in Russia. Subsequent to year end, the decision was made to wind down the Russian business as a consequence of the EU, UK and US sanctions, including but not limited to the US and EU requirements that consulting services cease and for most wind down (with certain exceptions) by 7 July 2022. The direct financial impact on the Group resulting from the Ukraine invasion and the cessation of our operations in Russia is limited. We remain alert to the current macroeconomic and geopolitical uncertainty and continue to monitor the potential impact on the wider business landscape; to date we have not seen any significant impact on those.
Full-time equivalent (“FTE”) employees increased by 1,310 during FY22, including 308 who joined the Group via our acquisitions (see below). As outlined above, the market was strong during FY22 and we were able to increase our FTEs continuously since FY21 in response to the improving market conditions and as a result of the increase in backlog. We ended the year at 6,504 FTEs. The average number of FTEs increased from 4,917 in FY21 (impacted by reduced working hours as part of our response to COVID) to 5,893 in FY22.
Partners: Partners in ERM are our senior management level leaders. We hired 62 Partners during FY22 which provides us with a strong platform to grow the business over the medium-term. We also promoted 41 Partners from our Path to Partnership programme and brought in 24 Partners through acquisitions during the year (see below).
Sustainability: We continue to play a leading role in the global sustainability agenda. Our 2022 Sustainability Report was issued in June 2022; this is our sixth report aligned with the Global Reporting Initiative’s (“GRI”) Standards and our eleventh annual public report. It is available online at https://www.erm.com/sustainability-report.
Acquisitions: We continued to make strategic acquisitions, successfully acquiring seven businesses during FY22:
(i) On 2 April 2021, ERM completed the acquisition of the First Option group of companies, a UK-based health and safety business serving the media and entertainment sector. The acquisition presents a significant opportunity for ERM to broaden its support for clients navigating this new environment.
(ii) On 15 April 2021, ERM completed the acquisition of the Sustainalize group of companies (“Sustainalize”), a Dutch sustainability consulting firm with offices in the Netherlands, Belgium and Germany. The acquisition expands ERM’s sustainability consulting capabilities in continental Europe and further reinforces ERM’s position as the global market leader in pure-play sustainability consulting.
(iii) On 28 May 2021, ERM completed the acquisition of E4tech, an energy and sustainability strategy consultancy with offices in the UK and Switzerland specializing in innovative and disruptive low-carbon technologies. The acquisition builds on the swift expansion of ERM’s LCET capabilities both organically and through related acquisitions.
(iv) On 30 June 2021,ERM completed the acquisition of the Element Energy group of companies (“Element Energy”), a specialist energy consultancy that works with organizations to implement integrated low-carbon technology solutions. The acquisition brings deep expertise to ERM in the development, commercialization and implementation of emerging low-carbon technologies, such as hydrogen and fuel cells, electrification, energy storage and carbon capture use and storage.
(v) On 1 July 2021, ERM completed the acquisition of The Renewables Consulting Group (“RCG”) group of companies, a global market intelligence, management consulting, and technical advisory business operating exclusively in the renewable energy sector. The acquisition expands ERM’s capabilities to support clients across the entire lifecycle of large-scale renewable energy projects, from market intelligence and strategy development through to the development, construction, operations, and decommissioning of projects.
(vi) On 8 November 2021, ERM completed the acquisition of Stratos Inc. (“Stratos”), one of Canada’s leading management consultancies focused exclusively on ESG and sustainability. As the market shifts to operationalizing sustainability, Stratos’ strategic management consulting insights and commitment to the reconciliation agenda coupled with ERM’s global implementation capability and wider subject matter experts will provide boots to boardroom capabilities across the lifecycle of our clients’ operations.
(vii) On 13 December 2021, ERM completed the acquisition of OPEX, a UK-based specialist software business delivering AI & data science solutions that help carbon intensive industries to reduce emissions. The acquisition marks the continued growth of ERM’s Digital business, which now includes several products and platforms aimed at achieving data-driven transformations to fulfil ESG and sustainability commitments.
We believe that ERM has an extraordinary growth opportunity, and commensurate challenge, ahead of us in the next financial year and beyond. FY23 budgeted growth is supported by record backlog, a track record of FTE growth in FY22 and a diversified service and sector client base.
Client demand is buoyed by LCET and ESG market drivers and we believe we are on the cusp of a new age of growth. We will leverage our exposure to a large growth industry with a strong focus on the ESG theme and proliferation of 'sustainability' and 'social responsibility' trends driving visible non-discretionary revenue streams.
COVID-19 has brought some short term challenges, but we had a big bounce back in FY22 and over the medium term we will continue with our strategy, which is 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 deep and lasting relationships with our clients and servicing their needs in more regions and across more service areas.
On 13 October 2021 KKR & Co. Inc. (“KKR”) and certain co-investors acquired a majority interest in ERM (“KKR Transaction”). The KKR Transaction enabled ERM's Partners to re-invest in the business alongside KKR, highlighting the Partners’ continued commitment to ERM and the confidence they share in the long-term outlook for the Group.
The financial year ended 31 March 2022 was the most successful year based on trading profit in ERM history. We are very optimistic about the future given the increased awareness on sustainability and growth in the market. Diversification has created a more balanced portfolio with reduced concentration risk in sectors, service lines, geography and customers. Demand for ERM’s services are evolving in a dynamic market environment and this demand is to some extent decoupled from levels of underlying economic growth where these services are now seen as mission critical and strategic for our customers. We remain excited by the opportunities ahead for us and we are maintaining investment and growing client relationships. We are well structured and financed and have strong current liquidity to ensure our business continues to thrive. The investment in the business by KKR demonstrates the success to date and the exciting prospects for the business.
