Financial year 2020 ('FY20') was overall another successful year for the sustainable, future growth of the ERM business, despite the COVID-19 crisis that emerged at the start of calender year 2020.
Despite some geopolitical uncertainty, the global economy remained steady in the first half of 2019. Trade policy doubts, geopolitical tensions, and idiosyncratic stress in key emerging market economies continued to weigh on global economic activity—especially manufacturing and trade—in the second half of 2019. Intensifying social issues in several countries posed new challenges, as did weather-related disasters—from hurricanes in the Caribbean, to drought and bushfires in Australia, floods in Eastern Africa, and drought in Southern Africa. Against this background, we grew our net revenue by 14% in the twelve-month period to December 2019. This is testament to the increased resilience of ERM’s more diversified revenue base, most notably the lower concentration of Oil and Gas customers, which has helped to offset the impact of headwinds experienced in that sector and points to the growth avenues that exist for the business in the future.
As we entered 2020 the COVID-19 pandemic started to emerge as a global crisis. This impacted our business, initially in Asia Pacific and then in our Europe, Middle East and Africa region toward the end of the financial year. This had a consequent impact on net revenue and profitability in Q4 FY20 as previous growth slowed. However, despite the initial challenges we view COVID-19 as a long-term opportunity for ERM. In particular, we anticipate the accelerated implementation of stricter environmental regulation and increased scrutiny on our existing and prospective customers’ environmental, social and governance (“ESG”) credentials, both of which should provide clear revenue opportunities for ERM.
Notwithstanding the impact of COVID-19 our sales still grew in FY20 with a consequent increase in backlog. The Pharmaceutical, Technology and Finance sectors were particularly strong. At constant exchange rates, our net revenue increased by 11% during FY20 and our trading profit increased by 1%. We continued to maintain significant investment for medium-term growth in key areas, including technology enablement of our key 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 particularly in developing offerings in this space by making key hires and also via acquisition.
Due to the combined impact of COVID-19 in Q4 FY20, our ongoing investment programmes outlined above and adverse events on two significant contracts outside of our control (namely High Speed 2 in the UK which was paused for a government review and the insurance industry reducing available coverage in relation to wildfire risks which restricted some of our work for utilities in California) our trading profit margin for FY20 was 15.0% compared to 16.7% for financial year 2019 (“FY19”). We generated strong operating cash flow of $166 million (before tax payments) during FY20 (FY19: $151 million). After deducting payments for tax, investing and financing activities, there was a net $28 million increase in cash (FY19: $38 million). We held $213 million of cash at 31 March 2020 (FY19:$191 million).
As outlined above, the market was strong during the first three quarters of FY20 and we were able to increase our Full-time equivalent (“FTE”) employees as our backlog grew. FTEs peaked in October at 5,797, an increase of 562 FTEs since March FY19, of which 193 were via acquisitions completed by that date. Thereafter, as the field season ended some larger projects were completed and COVID-19 began to impact, our FTEs decreased. We ended the year at 5,522 FTEs, an increase of 287 during FY20, of which 242 were via acquisitions. The average number of FTEs increased from 4,929 in FY19 to 5,513 in FY20.
Partners: Partners in ERM are our senior management level leaders. During FY20 we hired 44 new Partners and promoted 27 Partners internally from our Path to Partnership program. In addition, we welcomed 10 Partners via acquisitions (see below) and 45 Partners departed, to end the year at 617 Partners (FY19 year end: 581 Partners). Our average number of Partners in FY20 of 590 was 27 above FY19.
COVID-19: The global health emergency has had a profound impact on the world, our staff, clients and all sectors of the economy. We have taken swift action to mitigate the financial impact on our business, demonstrating our financial flexibility, while prioritising the safety and wellbeing of our teams and customers. We have a strong balance sheet and liquidity, with space for investment and further growth as markets recover. We have found new ways to strengthen our connection with our clients and have been able to continue to support our clients whilst working remotely. It will take time to fully recover but we are encouraged by our strong rebound in some parts of Asia and we are well prepared to navigate through this period. The crisis has resulted in a growing awareness of the world that we live in. The pandemic has exposed that gains made to address poverty, hunger, good health and well-being may face serious setbacks, unless the global community also urgently addresses the global environmental threats that have a similar capacity to undermine the systems that enable humanity and the planet to survive and thrive. This will undoubtedly result in stricter environmental regulations, more stringent ESG reporting requirements and increased scrutiny from investors and the public. We believe that we are uniquely positioned to support our clients as they navigate through these challenges and whilst there are short-term challenges, the future is positive with continued profitable opportunities for ERM. We believe that the investments and changes we have been making to our business over the past few years position us well to benefit from this accelerating structural shift, as we believe our heritage and technical capabilities give us a competitive advantage over our competitors.
Sustainability: We continue to play a leading role in the global sustainability agenda. Our 2020 Sustainability Report was issued in July 2020; this is our third report aligned with the Global Reporting Initiative’s (“GRI”) Standards and our eighth annual public report. It is available online at https://www.erm.com/sustainability-report.
Acquisitions: We continued to make multiple strategic acquisitions, successfully acquiring five businesses during FY20: (i) On 1 July 2019, we acquired CSA Global, a leading mining consultancy firm headquartered in Perth, Western Australia. CSA Global provides expert technical and management consulting services, as well as independent corporate advice to mining and exploration companies, and financial and legal groups worldwide. (ii) On 31 August 2019, we acquired Contek Solutions LLC (“Contek”), a safety and environmental engineering company located in Plano, Texas (US). Contek serves a broad client base in the Energy and Chemical sectors. (iii) On 30 September 2019, we acquired The Fifth Business (“Fifth”), an integrated change management, communications, learning and design consultancy with offices in Europe and North America. Fifth has a strong focus in the Oil & Gas sector, providing staff engagement, e-learning, inspiring design, and productivity coaching and change management execution. (iv) On 31 January 2020, we acquired Critical Resource Strategy & Analysis Ltd (“Critical Resource”), a specialist sustainability advisory company providing expertise in assessing stakeholder, political and ESG (environmental, social and governance) risks for the mining and energy industry. (v) On 3 March 2020, we acquired M.J. Bradley & Associates LLC (“MJB&A”), a specialist energy, climate change and sustainability advisory company that provides strategic policy and regulatory advice on the low carbon energy transition to the electricity and natural gas sectors along with a focus on advanced transportation initiatives in North America.
Our marketplace continues to grow and we are well positioned to support the growing demand for sustainability, climate change, low carbon economy transition (“LCET”) and ESG services. Whilst COVID-19 has brought some short term challenges our operating model is nimble with a flexible cost base and our business has so far been resilient in coping with the economic slowdown. We have endeavoured to minimise job losses and retain key staff so that we are well positioned to bounce back quickly as the economy recovers. 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.
In summary, despite the COVID-19 crisis that emerged at the start of calendar year 2020, the financial year ended 31 March 2020 was overall another successful year for ERM. Whilst there are undoubtedly challenges ahead we have a resilient outlook. 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 often 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.