IPEL.L Regulatory News (IPEL)

INTERIM RESULTS - UNAUDITED

Managed Services providing resilience in uncertain times

(1) Spend Under Management (SUM) is the total amount of client expenditure, excluding VAT, which our managed services brands (across all geographies) have been able to fill whether acting as a principal or an agent. This has been calculated either through the total amount invoiced to the client excluding VAT or, where we operate a direct engagement model, the value of the salaries and related costs of temporary staff we introduce to and administer for the client, plus our fee for this service.

(2) Group Supply is the value of the Spend Under Management supplied by other areas of the Group.

(3) Following a Group Revenue Recognition policy review the 2016 North America Revenue, Cost of Sales, Spend Under Management and UK and US Group Supply numbers have been restated. This has no impact on gross profit.

(4) Before separately disclosed items (see note 4) and share-based payments.

(5) Calculated as Adjusted Operating Profit / Gross Profit.

(6) Before separately disclosed items, share-based payments and customer relationship amortisation.

Key operational highlights

§ Revenues increased by 2.4% and gross profit increased by 0.8% over the same period last year (down 3.7% on a like for like currency basis), impacted by challenging conditions in our UK Specialist Staffing and Healthcare businesses. Gross profit from non-UK operations as a proportion of total gross profit increased from 33.2% to 37.6%, reducing our dependency on the UK, as planned.

§ Managed services businesses in the UK, US, Australia and the Middle East performed in line with expectations, with spend under management increasing by 4.7%, and 16 new business wins under implementation in H1. Healthcare Managed Services continues to perform well in the UK and Australia, protecting our position in a turbulent market.

§ Conversion of gross profit to adjusted operating profit in H1 was down from 20.5% to 13.6% driven by challenging conditions in the UK Specialist markets, the impact of off-payroll working legislation (IR35) in the UK Doctors and Nursing market, increased investment in both IT and in integrating and upgrading our US finance operations. Actions have been taken to reduce cost to best protect our financial performance and significantly improve the conversion of gross profit to adjusted operating profit in the second half of the year.

§ We continue to invest in developing great managers through our Virtuoso Management development programme which was delivered to 120 of our highest potential managers in H1. We know that virtuoso managers make a critical difference to our customers, candidates and to our financial performance. We also now have 270 apprentices across the business.

§ Net debt reduced to £92.1m with good operating cash generation of £21.9m.

§ Interim dividend of 7p, unchanged from H1 2016.

Julia Robertson, Chief Executive Officer, commented:

"During the first half of 2017 we have seen our Managed Services businesses across the world, aimed largely at the contingent workforce, continue to perform in line with expectations; with customer retention at 94% (based on our largest 50 customers), a record number of new programmes in implementation and a strong sales pipeline. In particular Guidant, Comensura and Lorien in the UK have all delivered strong H1 performances. We continue to win new business in the competitive Healthcare managed services market in the UK as we work with the NHS to provide them with visibility, control and cost savings, and likewise in Australia. In North America our Managed Services and Onsite programmes continue to perform well with a higher than planned win ratio, although H1 was impacted by the timing of wins over losses. Investment in Managed Services continues in line with increased demand from our customers who recognise the benefits of a high retention proposition, where the focus on controlled talent acquisition is paramount to commercial success.

Our Specialist Staffing businesses, particularly in the UK, have proved less resilient to the unpredictable climate and economy we are experiencing. However, as planned, Group Supply has increased by 4.5%. As customers continue to tread cautiously, with confidence to hire weakening in the lead up to and following the UK General Election, our UK Specialist Staffing businesses have had a challenging first half, with our Education, Office and Legal businesses each facing year on year gross profit decline.

Notwithstanding this, Blue Arrow (Industrial/Office/Catering) has a strong pipeline of client implementations for H2 and is investing in technology to free up staff from administrative tasks to concentrate on adding value to customers and candidates. Our Engineering, Aviation, Construction, Scientific and Clinical businesses have all produced strong performances.

In our Healthcare business, the impact of off-payroll working legislation (IR35) has compounded a market already suffering from reduced doctor and nurse availability due to rate caps, with a longer lead time for placements and delays in submitting timesheets.

 Whilst we continue to invest in our growing Specialist Staffing markets, actions are in place to reduce headcount and other areas of the cost base to protect the financial performance of this segment.

Outside the UK, market conditions are more favourable. In the US, Specialist Staffing has seen particularly strong performances in our technology and clinical brands. Growth in our Australian businesses, although relatively small, remains strong with gross profit up 24% and operating profit has more than doubled from H1 2016.

We have continued to invest in the business with two strategic IT initiatives; the first one will benefit our Specialist Staffing businesses with improved productivity and efficiency as well as an enhanced digital experience for customers and candidates, and the second to enhance our offering in the Healthcare Managed Service market. Furthermore we have invested in the development of our virtuoso managers who are central to the achievement of our strategy and ambitious financial goals.

In North America, we have invested in integrating our financial systems and upgrading our finance back office to create a more robust platform to support our market facing brands.

In summary, notwithstanding the economic, political, social and technological turbulence we are experiencing in our two major geographic markets and a disappointing first half, driven primarily by market specific issues, I see opportunities across our business to drive financial performance by both reducing overhead costs and driving organic growth."

Managed Services UK, Europe and Australasia

Gross profit increased by 0.7% to £29.8 million (2016: £29.6 million). Operating profit decreased to £8.0 million (2016: £9.6 million) with conversion of gross profit to operating profit of 26.8% compared to 32.4% in the same period last year. Gross profit has increased across most of our UK Managed Services businesses with the fall in conversion driven by some volume losses in the technology sector and ongoing investment in our new Younifi proposition (managed social healthcare) which is on track to win its first customer in 2017.

Specialist Staffing UK, Europe and Australasia

Gross profit decreased by 4.3% to £69.4 million (2016: £72.5 million). Operating profit was £7.1 million (2016: £12.6 million) with conversion of gross profit to operating profit of 10.2%, compared to 17.4% in the same period last year. We saw lower fees in both temporary and permanent recruitment in the office, education and legal sectors. The Healthcare business experienced challenges in UK Doctors and Nursing primarily as a result of the new IR35 legislation which impacted in Q2 and resulted in a 13% reduction in gross profit.

US Managed Services

Gross profit increased by £2.1 million to £24.3 million (2016: £22.2 million). After adjusting for currency movements this was an underlying decrease of 5.8%. Operating profit decreased to £4.1 million (2016: £5.7 million). Conversion of gross profit to operating profit reduced from 25.7% in 2016 to 16.9% in 2017 impacted by a small number of client losses.

US Specialist Staffing

Gross profit increased by £1.9 million to £16.6 million (2016: £14.7 million). After adjusting for currency movements this was broadly flat. Operating profit decreased by £0.5 million to £3.0 million (2016: £3.5 million). Conversion of gross profit to operating profit reduced from 23.8% in 2016 to 18.1% in 2017. Strong gross profit growth in the Technology (10.9%) and Clinical (7.0%) sectors was offset by a reduction in Automotive (12.7% decline).

Cash flow, net debt and net assets:

The Group generated £21.9 million of cash from operations in the first twenty-six weeks of the year (2016: £22.9 million). Good underlying cash performance was the result of the continued focus on cash collections and working capital management activities. Days sales outstanding (DSO), was 40.7 days as at 30 June 2017 (2016 36.3 days). Day-to-day control of cash and tight control of working capital continues to be a priority for the Group.

In addition, the Group has outstanding letters of credit drawn against its US borrowing facilities amounting to $5.7 million (31 December 2016: $4.6 million).  

At 30 June 2017, the Group had net assets of £252.1 million (31 December 2016: £246.8 million).

Dividend and dividend policy:

The interim dividend is 7.0 pence per share (2016: 7.0 pence per share) payable on 6th October 2017 to those shareholders on the share register on 1st September 2017. This is in line with our stated policy of maintaining dividend cover of between 4-5 times adjusted earnings per share.

Trading Outlook:

Whilst trading conditions remain challenging, particularly in the UK Specialist Staffing and UK Healthcare Markets, our Managed Services businesses are continuing to perform well across all our geographies. The remainder of the year will see the benefit of our cost reduction actions, our implementations of new Managed Service programmes and our strong sales pipeline. These, combined with the normal uplift in H2 due to the seasonal nature in some of our businesses, means that we expect to see a significantly improved performance in the second half of the year.

Financial results for the twenty-six weeks to 30 June 2017

The table below sets out the results for the Group by segment for the first half of 2017.

1. Spend Under Management (SUM) is the total amount of client expenditure, excluding VAT, which our managed services brands (across all geographies) have been able to fill whether acting as a principal or an agent. This has been calculated either through the total amount invoiced to the client excluding VAT or, where we operate a direct engagement model, the value of the salaries and related costs of temporary staff we introduce to and administer for the client, plus our fee for this service.

2. Group Supply is the value of the Spend Under Management supplied by other areas of the Group.

3. % change measured at constant currency rates (2016 results restated at 2017 rates).

4. Following a Group Revenue Recognition policy review the 2016 North America Revenue. Cost of Sales and Spend Under Management and UK and US Group Supply numbers have been restated. This has no impact on gross profit.

Consolidated income statement

For the twenty-six weeks ended 30 June 2017

(1) Following a Group Revenue Recognition policy review the 2016 North America Revenue numbers have been restated. This has no impact on gross profit.

Consolidated statement of comprehensive income

For the twenty-six weeks ended 30 June 2017

Consolidated balance sheet

As at 30 June 2017

Consolidated cash flow statement

For the twenty-six weeks ended 30 June 2017

Notes to the interim financial statements

1 Basis of preparation

I. Statement of compliance

The interim financial statements presented in this financial report have been prepared in accordance with International Financial Reporting Standards (IFRS) and the IFRS Interpretations Committee (IFRIC) interpretations as endorsed by the European Union that are expected to be applicable to the consolidated financial statements for the year ending 31 December 2017. As permitted, this interim report has been prepared in accordance with the AIM Rules for Companies and does not seek to comply with IAS 34 "Interim Financial Reporting".

II. Statutory information

The financial information for the 26 weeks to 30 June 2017 does not constitute the statutory accounts of the Group for the relevant period within the meaning of section 434 of the Companies Act 2006.

The published annual report and accounts of Impellam Group plc for the year ended 31 December 2016 were reported on by the auditors without qualification, did not contain an emphasis of matter paragraph, did not contain any statement under section 498 of the Companies Act 2006, and have been delivered to the Registrar of Companies.

III. Accounting year

The financial statements have been prepared based on a twenty-six week accounting period ended 30 June 2017 for the current year, and 1 July 2016 for the comparatives. The 2016 full year accounting period ended 30 December 2016. For the purposes of understanding, the references on balance sheet notes to the actual start and end dates of the years have been based on actual calendar dates rather than the start and end dates of the relevant accounting periods.

IV. Accounting policies, new IFRS and interpretations

The accounting policies used in this report are consistent with those applied at 31 December 2016. No new and/or revised IFRS and IFRIC publications that come into force in the period have any material impact on the accounting policies, financial position or performance of the Group.

2 Segmental information

Twenty-six weeks ended 30 June 2017 - unaudited

Twenty-six weeks ended 30 June 2016 - unaudited

(1) Following a Group Revenue Recognition policy review the 2016 North America Revenue numbers have been restated. This has no impact on gross profit.

3 Spend under management and group supply - unaudited

(1) Following a Group Revenue Recognition policy review the 2016 North America Spend Under Management and UK and US Group Supply numbers have been restated. This has no impact on gross profit.

(2) Group Supply is the value of the Spend Under Management supplied by other areas of the Group.

4 Separately disclosed items - unaudited

(1) Acquisition costs relate to contingent consideration in respect of Global Medics in 2017 and Lorien in 2016. These costs are one-off in nature and have been disclosed in order not to distort the underlying trading performance of the business.

(2) Business restructuring costs are of such significance that they are excluded in order to bring them to the reader's attention in understanding the Group's financial position. The costs relate to the Bartech acquisition and are redundancy costs (2016) and property closure costs (2016 and 2017).

(3) In 2017 the US incurred tax and associated legal costs of £0.3 million with regard to the settlement of historic state tax liabilities for the period 2010 to 2016. In addition the US has an ongoing litigation matter for which a provision for settlement and associated legal costs of £1.7 million has been made in the period. These are disclosed separately due to their one-off nature and significance.

5 Finance expense - unaudited

6 Taxation - unaudited

Income tax expense is recognised based on management's best estimate of the effective annual income tax rate expected for the full financial year. 

7 Earnings per share - unaudited

Basic earnings per share amounts are calculated by dividing the profit for the period attributable to the owners of the Company by the weighted average number of Ordinary shares outstanding during the period.

Diluted earnings per share amounts are calculated on the same basis but after adjusting the denominator for the effects of dilutive options. The only potentially dilutive shares arise from the share options issued by the Group under its share-based compensation plans. There were 850,000 options outstanding at 30 June 2017.

Excluding the 19,841 shares owned by The Corporate Services Group Ltd Employee Share Trust, the weighted average number of shares in 2017 is 50,322,530 (2016: 49,951,001) and the fully diluted average number of shares is 50,975,488 (2016: 50,887,148).

8 Additional cash flow information - unaudited

9 Dividends - unaudited

During the period a final dividend in respect of 2016 of 13.5 pence per share (2016: re 2015 10.0 pence per share) was approved at the Annual General Meeting and will be paid on 10 August 2017, amounting to £6.8 million (2016: re 2015 £5.0 million).

The Board also announces the payment of an interim dividend of 7.0 pence per share (2016: 7.0 pence per share), amounting to £3.5 million (2016: £3.5 million) payable on 6 October 2017 to all shareholders on the register on 1 September 2017.

Enquiries: For further information please contact the appropriate individual below:

Note to Editors:

Impellam Group plc, traded on the AIM (Symbol: IPEL) is a leading provider of Managed Services and Specialist Staffing expertise and is primarily based in the UK and North America, with smaller operations in Asia Pacific, Ireland and mainland Europe. Impellam Group plc provides fulfilling jobs at all levels, including doctors, lawyers, accountants, nurses, teachers, scientists, receptionists, drivers, chefs, administrators, engineers, technology specialists, cleaners, security guards, and manufacturing and warehouse operatives. Impellam Group plc is the 2nd largest staffing business in the UK and 6th largest MSP provider worldwide (as measured by Spend Under Management), employing over 3,400 people across 182 worldwide locations.

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