REG - Impellam Group plc - Full Year Results
27/04/2020 07:00
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RNS Number : 8773K Impellam Group plc 27 April 2020
27 April 2020
Impellam Group plc
("Impellam", the "Group" or the "Company")
RESULTS FOR THE YEAR ENDED 3 JANUARY 2020
Impellam (AIM: IPEL) announces its audited final results for the 52 weeks ended 3 January 2020.
STRONG GROSS PROFIT AND CASH CONVERSION
FY 2019((1)) FY 2018((1),(2)) Actual Inc/(Dec) Like-for-like((8)) Inc/(Dec)
Revenue (£ millions) 2,254.8 2,267.3 (0.6)% (1.2)%
Gross Profit (£ millions) 274.1 277.5 (1.2)% (2.2)%
Adjusted EBITDA ((3)) 46.7 49.8 (6.2)% (7.1)%
(£ millions)
Adjusted EBITDA conversion ((4)) 17.0% 17.9% (0.9)%
Adjusted operating profit ((5)) 36.0 41.4 (13.0)%
Adjusted operating profit conversion ((6)) 13.1% 14.9% (1.8)%
Operating profit (£ millions) 13.9 22.5 (38.2)%
Continuing Adjusted Basic EPS ((7)) 47.6 61.5 (22.6)%
Continuing Basic EPS 9.8 25.8 (62.0)%
Financial results presentation
In 2019 we adopted IFRS 15 - Revenue from Contracts with Customers and IFRS16
- Leases. For IFRS 16 we have applied the modified retrospective approach and
have therefore not restated the 2018 comparative results for the new
standard's material impact.
IFRS 16 affects adjusted EBITDA, operating profit and net debt and therefore
the year-on-year results as reported are not shown on a comparable basis.
The de-merger of Carlisle Support Services in 2019 has been treated as a
discontinued operation and the 2018 results have been restated accordingly.
Towards the end of 2018 the Group changed its estimate of the useful economic
life over which it carries brand values. This has led to an amortisation
charge in 2019 of £6.3m (2018: £0.5m).
The table below bridges 2018 to 2019 on a comparable basis at actual exchange
rates.
Reported Discontinued Ops PYA Restated Comparable IFRS 16 Brand Value Reported
2018 2018 2018 2018 2019 2019 2019 2019
Revenue 2,276.7 (56.7) 47.3 2,267.3 2,254.8 0.0 0.0 2,254.8
Gross Profit 282.3 (4.8) 0.0 277.5 274.1 0.0 0.0 274.1
Adjusted EBITDA(3) 50.2 (0.4) 0.0 49.8 46.7 0.0 0.0 46.7
Adjusted Operating Profit(5) 41.8 (0.4) 0.0 41.4 36.3 (0.3) 0.0 36.0
Operating Profit 22.9 (0.4) 0.0 22.5 20.5 (0.3) (6.3) 13.9
Net Debt 71.7 0.0 0.0 71.7 72.3 24.4 0.0 96.7
(1) Following a review of revenue recognition 2018 financial statements were
restated (see note 11). IFRS 16 - Leases was adopted in 2019, 2018 financial
statements are not restated (see note 10).
(2) 2018 financial statements restated for discontinued operations (see note
3).
(3) Before IFRS 16, separately disclosed items (see note 4) and share-based
payment (see note 2).
(4) Calculated as Adjusted EBITDA / Gross Profit.
(5) Operating profit before amortisation of acquired intangible assets,
separately disclosed items (see note 4) and share-based payment (see note 2).
(6) Calculated as Adjusted operating profit / Gross Profit.
(7) Continuing Basic EPS before separately disclosed items (see note 4),
share-based payment (see note 2) and amortisation of acquired intangible
assets.
(8) % change measured at constant exchange rates.
Key operational highlights
§ Group revenue and gross profit increased year-on-year, after adjusting for
the extra week in 2018 (53 weeks compared to 52 weeks in 2019). On an absolute
year-on-year basis gross profit is down 1.2% at £274.1m (2018: £277.5m).
§ Cash conversion (including IFRS 16 impact) remains strong at 356% (106% of
adjusted EBITDA(1)).
§ Global Managed Services revenue up 5.8% (5.0% at constant exchange rates)
and now accounts for 34% of our revenue, 28% of our gross profit and 39% of
our segment adjusted EBITDA(1).
§ Our new segmental structure Global Managed Services, Global Specialist
Staffing, Regional Specialist Staffing and Healthcare enables increased
collaboration and reduced duplication.
§ Spend Under Management (SUM)(1) up 8.1% (£255.8m) and a Group fill(2) rate
of 17% (2018: 16.8%) with a 9.7% increase in Group fill revenue (at constant
exchange rates and excluding two clients lost in 2018), up from £528m in 2018
to £579m in 2019.
§ A reduction in headcount year-on-year of 5.4% delivered cost savings and
efficiency increases.
§ As a result of the merger of Guidant Global, international customer
expansions delivered £78.3m in revenue.
§ We continued to diversify our portfolio with the acquisition of Flexy, a
digital staffing platform.
§ Carlisle Support Services Group was demerged from the Group in March 2019.
§ Gross profit grew in Education, Legal, Life Sciences and Engineering in
both the UK and US.
§ Adjusted EBITDA(1) of £46.7m is 6.3% lower than prior year (7.1% lower at
constant exchange rates), reflecting the impact of the additional week in 2018
and trading conditions in the UK and US markets.
§ Operating profit was £13.9m (2018: £22.5m). In addition to the trading
performance this was impacted by an increase in depreciation and amortisation
as a result of investment in IT in prior years, an intangible impairment of
£7.0m of the Education and Younifi businesses (2018: £8.6m) and additional
amortisation of acquired intangibles of £10.2m (2018: £4.2m). These are
non-cash adjustments but affect basic earnings per share.
§ In response to the COVID-19 pandemic, our agile Virtuoso mind-set and our
investment in digital and technology enabled us to transform to a fully
operational 'work from home' model within two days of regional government
instructions.
Trading update (unaudited)
Gross profit for Q1 declined by 5.1% against the same period last year as we
started to see the impact of COVID-19 in March 2020. This was more marked in
the UK, down 6.9%, with Australia down 2.3% whilst the US was up 2.1%.
Across the segments we saw the largest declines in our Regional Specialist
segment with customers in manufacturing, retail, catering, hospitality and
education being impacted more severely. In the last quarter of 2019, we
implemented a cost reduction programme in line with the ongoing integration
of the Group and this cost control was maintained throughout Q1, offsetting
much of the year over year reduction in gross profit such that operating
profit was £5.3m compared to £5.5m in the same period in 2019.
The decline in trading has been more significant since lockdowns were enforced
across our geographies and we anticipate a more pronounced impact on trading
results in Q2. In anticipation of this we have taken decisive action to
further manage our cost base and strengthen our financial position including:
· Agreed salary sacrifices for all Board and senior management
· Furloughed staff in segments most significantly impacted by
Covid-19
· Curtailed discretionary spend including travel, entertainment,
marketing and IT
· Postponed all but non-essential capital expenditure
· Suspending the share buyback programme (effective today)*
· Utilised the UK Government's VAT deferral scheme
We will continue to implement these preservative measures whilst government
restrictions on social movements remain in place, however due to the
uncertainty around the length of the lockdown period, at this stage it is not
possible to determine the full impact on the full year trading performance. We
have modelled various downturn scenarios and our stress testing shows that the
Group can withstand both a material and prolonged decline in revenue, although
certain material uncertainties remain.
At the end of Q1 net debt (excluding IFRS 16) remained at similar levels to
those at the year end and in line with the same time last year. With the
expected Q2 trading reduction we anticipate reduced working capital
requirements and this, together with the c£35m cash benefit from the UK
Government VAT deferral scheme, the suspension of the share buyback programme
and reduction in capital expenditure means that we expect net debt to reduce
over this period. The Group has £240m of facilities committed to April 2022
(£220m to April 2023). The Board are confident that Impellam has the
resources to continue to support our customers and candidates through this
period and beyond normal economic conditions return.
*While the Company has suspended its share buyback programme, it retains the
authorities to buy back shares in the future and may consider ad hoc purchases
of shares if deemed appropriate by the board
.
1. Explanations of Alternative Performance Measures are at the end of
the report.
2. Group Fill is the value of the Spend Under Management supplied by
other areas of the Group.
Enquiries:
For further information please contact:
Impellam Group plc
Julia Robertson, Group Chief Executive Tel: 01582 692 658
Tim Briant, Group Chief Financial Officer
Canaccord Genuity Ltd (NOMAD and Corporate Broker to Impellam)
Bobbie Hilliam Tel: 020 7523 8150
Georgina McCooke
This announcement contains inside information for the purposes of Article 7 of
EU Regulation 596/2014
Financial results for the fifty-two weeks to 3 January 2020
The table below sets out the results for the Group by segment for 2019.
Revenue Gross profit Adjusted EBITDA(3)
£'million 2019 2018 Like-for-like change(1) 2019 2018 Like-for-like change(1) 2019 2018 Like-for-like change(1)
Global Managed Services 757.1 715.8 5.0 78.0 75.5 (1.4) 18.5 18.2 (0.5)
Gross profit % 10.3% 10.5%
Global Specialist Staffing 649.1 682.2 (5.3) 55.5 54.9 0.2 16.7 16.8 (1.8)
Gross profit % 8.6% 8.0%
Regional Specialist Staffing 650.3 682.2 (5.9) 94.0 97.8 (5.0) 11.2 13.5 (18.8)
Gross profit % 14.5% 14.3%
Healthcare 245.8 247.0 (0.3) 46.6 49.3 (4.9) 3.1 4.4 (25.6)
Gross profit % 19.0% 20.0%
Inter-segment revenues (47.5) (59.9) - - - -
Total 2,254.8 2,267.3 274.1 277.5 49.5 52.9
Corporate costs (2.8) (3.1)
Adjusted EBITDA 46.7 49.8
Net IFRS 16 adjustment(2) (0.3) -
Depreciation and amortisation(4) (10.2) (8.2)
Loss on disposal (0.2) (0.2)
Adjusted operating profit(5) 36.0 41.4
Amortisation of acquired intangible assets (10.2) (4.2)
Impairments (7.0) (8.6)
Separately disclosed items (4.9) (5.7)
Share-based payments - (0.4)
Operating profit 13.9 22.5
1. % change measured at constant exchange rates.
2. IFRS 16 adjustment is the add back of operating lease charges (see
note 2).
3. Adjusted EBITDA is EBITDA before separately disclosed items and
share-based payments.
4. Before separately disclosed items, share-based payments and
amortisation of acquired intangibles.
Chairman's Comments on the Results
Amidst uncertain market conditions, in 2019 Impellam Group continued to focus
and evolve our portfolio to meet the changing needs of our customers and
candidates whilst delivering the economic and productivity benefits of
integration and collaboration across the Group.
We continued to invest in line with our strategy strengthening the portfolio
with new service lines and technological innovation whilst freeing up our
people to build strong relationships with customers, candidates and suppliers.
This has increased our reach and capabilities, particularly within managed
Services, and improved our overall resilience.
There were no changes to the Impellam Board in 2019.
We entered 2020 fully expecting ongoing economic uncertainty as our UK
businesses adapted to Brexit, and now Covid-19 has struck the global economy.
Clearly this is an unprecedented crisis and thus its impact is extremely
difficult to predict. Julia and her team have responded swiftly and decisively
to ensure we continue to deliver financial and strategic benefits to our
people, candidates, customers and shareholders alike, during and after this
current crisis.
I would like to thank the Board and our shareholders for their continued
support and our people for their hard work and contribution during this
challenging time.
Lord Ashcroft KCMG PC
Chairman
Group Chief Executive Officer's Review
OPERATIONAL REVIEW
Group revenue increased by 1.4% and gross profit by 0.7% on a like-for-like
basis (after adjusting to reflect 52 weeks in 2019 compared to 53 weeks in
2018). On a reported basis, Group revenue reduced by 0.6% and gross profit by
1.2% when compared to 2018. Adjusted EBITDA(1) reduced by 6.3% to £46.7m and
operating profit was £13.9m (2018: 22.5m). Cash conversion (including IFRS 16
impact) remains strong at 356% (106% of adjusted EBITDA(1)) and productivity
per head increased by 2.2%.
This performance was delivered against the backdrop of volatile, uncertain and
increasingly ambiguous world market conditions and was achieved by a
determined move to a more integrated business model, reducing costs and
driving increased collaboration. We responded with decisiveness and agility to
rapidly changing market conditions and by continuing to invest in our Virtuoso
culture, our high growth markets (Managed Services, Technical, North America
and Australia) and our digital initiatives: Shiftwise and Ignite.
STRATEGIC REVIEW
Through our drive to become the most trusted staffing company, comes the
mission of the Group - to show that there is a better way to do recruitment, a
way where fulfilled, engaged, adaptable and productive people build better
businesses for our customers.
Impellam provides good work for people and people for good work, whilst
adapting to changing world markets with Virtuoso-led innovation. Virtuosos
running the Company with greater spans of control enable us to navigate
continually changing marketplaces - recognising it is our people, who can
truly make the difference. Virtuosos see that as times change, so their
offering needs to change. Virtuosos constantly tune in, innovate, make and
deliver on new promises and grow with their customers to ensure their evolving
needs are met - whether through sector, service or international expansion,
ensuring there is never a need for a customer or candidate to leave Impellam.
Virtuosos from all our specialist businesses, whether Managed Services or
Specialist Staffing, share a vision, mission, style and language and are
better able to work together in our integrated business model.
Alongside their vertical or horizontal market focus, they confidently and
willingly collaborate on a broad range of Group initiatives, including placing
more people into good work with our Managed Service customers (Group fill and
cross-sell), innovating and creating new service offerings (selling and
recruiting) and sharing learnings, best practice and resources (reducing
duplication and waste). During 2019, we delivered strong gross profit and cash
conversion and improved the productivity of our people whilst making important
strategic progress. Notwithstanding this strong performance, operating profit
declined year-on-year due to non-cash adjustments including a catch up of
amortisation of brand value and impairment of intangible assets which we
acknowledge has had a detrimental impact on earnings per share ('EPS').
ENABLING OUR VIRTUOSOS
We have now invested in and developed more than 400 Virtuosos across the Group
who have greater span of control and run more of the Company. As a
consequence, our manager community has reduced by 20% whilst gross profit per
head has increased by 2.2%.
I have now created the Virtuoso Alliance, a team of Virtuosos who work with me
to help me widen and deepen my understanding of the changing world of work and
the challenges and opportunities our customers and candidates face. This
collaboration gives the leadership team and me a fresh perspective on our
strategy and our priorities and enables us to collectively see meaningful
opportunities where we can innovate and remain relevant.
Origin, our innovation hub, continued to seed and support ideas from our
Virtuosos and amongst other things, created partnerships with technology
providers to enhance our service offering or to increase our efficiency. In
fact, one such partnership led to the acquisition of Flexy.
TRANSFORMING THE PORTFOLIO
During 2019, we continued to focus our portfolio to give increased strategic
clarity and meet the needs of our customers and our people in the changing
world of work. Our Managed Services businesses have thrived as our customers
seek to increase their agility and flexibility in a world that continues to
ride the waves of disruption by shifting to talent-led workforce management
strategies underpinned by increased use of temporary, gig and contractor
talent. To meet these challenges head-on, Guidant Global has delivered
synergies from its merger in 2018 and together with Comensura added new
service lines, implemented innovative technological solutions and expanded
global reach.
In 2019, we have seen the benefit of the integration and rebranding of Guidant
Global. With increased reach, relevance and a broader, global service
offering, three programmes have been expanded internationally delivering an
additional £78.3m in revenue. In addition, Guidant Global and Comensura
implemented 23 new programmes across the world, and, signed contracts with a
further 13 customers for implementation in 2020. Furthermore, Guidant Global
was announced as a 'Leader' in the Everest Group's MSP Peak Matrix report.
Recognising the organic growth opportunity that exists in North America,
during 2019 the Group made a strategic investment in a new management team in
the region to transform and grow our businesses with a particular focus on
Technology, Life Sciences and Managed Services, together with driving
accelerated progress with Group fill.
During 2019, we made important progress with our digital business capability.
In July, we acquired Flexy, to combine their digital capabilities and consumer
grade technology with our deep staffing heritage and expertise so that we can
offer new solutions, better choice and better, more meaningful experiences for
customers and people alike.
Founded in 2015, Flexy uses psychometrics, machine learning and nudge theory
to unlock local talent, enabling meaningful connections between companies and
people.
IMPROVING RESILIENCE
During 2019, the portfolio has been reshaped, reorganised and led with focus
to deliver the economic benefits of an integrated business model - one which
drives gross profit growth led by Managed Services and increased quality of
earnings through collaboration and reduces overheads through reduced
duplication and re-work. Our new segmental structure, following the divestment
of Carlisle Support Services in March 2019, reflects this portfolio
reorganisation and is described in more detail in the Operating Review which
follows.
Our brand rationalisation continues with the merger and rebranding of SRG in
the UK with SRG Woolf in the US to become a single, leading global STEM talent
network enabling us to swiftly build scale to meet emerging customer and
people needs. Recognising the attractiveness and growth opportunities of the
global technology market, we have brought together all our technology brands
under shared leadership to bring further consolidation and cross-sell
opportunities and to increase market share and reach. In support of this,
Lorien, our leading UK technology business refreshed and sharpened its brand
proposition, identity and go-to market strategy in anticipation of expansion
in 2020.
The Group fill initiative was a fruitful source of incremental gross profit in
2019 and a clear sign of the strategy in action. The Specialist Staffing
brands gained £3.6m more gross profit from Group fill in 2019 compared to
2018. On a like-for-like basis (using constant exchange rates and excluding
two clients lost in 2018) Spend Under Management(1) ('SUM') is up 8.1%
(£255.8m). We achieved a Group fill(2) rate of 17% (2018: 16.8%) with a
9.7% increase in Group fill revenue, up from £528m in 2018 to £579m in 2019.
The quality, breadth and depth of our service offering across the Group means
that increasingly, there is no need for customers to leave Impellam as their
needs grow and evolve in a changing world. In 2019, 22 customers took another
step on their journey with Impellam, either by moving from a transactional
staffing relationship to a Managed Service or Fixed Price partnership or by
expanding geographic coverage with the Group. Collectively, these deepening
relationships borne from the Group's strategic focus on innovation, retention
and collaborative cross-sell delivered £4.4m in incremental gross profit.
In addition, across the Group our customer retention has increased from 56.1%
to 57.5% (+1.4pts) and our focus on value-based pricing has also delivered
strong results with average invoice value ('AIV') for permanent placement fees
increasing by 8.8%. Retention of our top 50 customers, who represent 41.3% of
gross profit, increased by 2% to 98%.
As planned, progress was made during 2019 to integrate the business and
efficiencies and cost reductions were realised. In some cases, management and
functional support has been amalgamated and shared between brands leading to
headcount reductions and in other cases process efficiency has been achieved
through automation. Much of the cost reduction came from the management of our
headcount which stood at 2,968 at the end of 2019, down 169 (5.4%) from the
end of 2018. A significant element of the headcount reduction came in Q4 2019
with full year benefits expected in 2020.
OPERATING REVIEW
Our new portfolio structure has enabled increased integration of our brands
under collaborative leadership in pursuit of our strategic goals, whilst
increasing our focus on the growth opportunities in each of our vertical or
horizontal markets. The portfolio structure is reflected in our segmental
reporting as follows:
Global Talent Acquisition and Managed Workforce Solutions
Our core Managed Service providers, Guidant Global and Comensura, which
operate in the UK, North America, Europe and Australasia delivered a robust
result in a challenging market.
Technological advances, demographic change and globalisation are reshaping the
managed services industry and as businesses look to increase their agility and
flexibility in a marketplace that continues to ride the waves of disruption,
companies are shifting to employ temporary, gig and contractor talent. In such
a talent-led market, people are demanding more from businesses, even when they
are engaged in non-traditional arrangements.
To meet these changing market conditions head-on, Guidant Global and Comensura
have continued to add new service lines, implement innovative technological
solutions and expand global reach to ensure that both businesses can meet the
changing demands of people, customers and suppliers. Our combined Managed
Services business now accounts for 34% of our revenue, 28% of our gross profit
and 39% of our segment adjusted EBITDA(1). Global Managed Services delivered
gross profit at £78.0m (2018: £75.5m) an increase of 1.4% on prior year on a
constant exchange rate basis with growth across both brands. Segment adjusted
EBITDA(1) from Managed Services is £18.5m (2018: £18.2m), which is flat on a
constant exchange rate basis with prior year.
Global Specialist Staffing
Our technology brands (Lorien, onezeero, s.com) and our life sciences brand
(SRG and SRG Woolf, now rebranded collectively to SRG) performed in line with
expectation, with both SRG and s.com growing revenue and gross profit
year-on-year.
During 2019, Global Specialist Staffing continued to enhance its geographical
capability and service offering to support customer demand and to improve
resilience. This, combined with deep market expertise across each of our
sectors, delivered strong results. Following continued investment in
internationalisation, service diversification and challenging market
conditions in the UK, Global Specialist gross profit was up 1.1% at £55.5m
and segment adjusted EBITDA(1) remained steady at £16.7m.
Regional Specialist Staffing
Our local market experts - Blue Arrow, Tate, Carbon60, Chadwick Nott, Celsian
and Career Teachers in the UK and Bartech and Corestaff in North America
experienced challenging market conditions, particularly in the retail,
automotive and manufacturing industries across the UK and US; with reduced
spend from sector specific clients in the UK as a result of continued market
uncertainty.
Regional Specialist Staffing continued its transformation programme with
ongoing investment in digital, IT and service diversification. This has
resulted in increased collaboration in support of initiatives such as Group
fill which has delivered an additional £1.6m in gross profit. Regional
Specialist Staffing gross profit was £94.0m, 5.0% down on prior year and
segment adjusted EBITDA(1) was down by 17.3% at £11.2m, impacted by
challenges in the UK market.
With a focus on efficiency and productivity through integration and investment
in digital and IT, gross profit per head in the Regional Specialist Staffing
division increased from £88.8k to £91.7k, an increase of 3.2%. A swift
response to challenging market conditions resulted in a cost base reduction of
2.8%, mostly though a headcount reduction of 96 through the year.
Healthcare
As a leading international healthcare workforce solutions provider, Medacs
Global Group (MGG), operates under several brands including Medacs Healthcare,
Global Medics, Doctors on Call, Fast Response Healthcare and Litmus Workforce
Solutions. As the business continues to adapt to the evolving global
healthcare market, 2019 was a transitional year for MGG.
In the UK, MGG focused on creating greater alignment with the direction and
core challenges faced by our clients, primarily the NHS. Globally, MGG has
integrated its UK, Ireland and Australasia businesses with resources and
services being shared and this focus and integration has paved the way for
further improvement in conversion of gross profit to adjusted EBITDA(1).
Notwithstanding good strategic progress in the UK, growth in Australasia and
process efficiency work which delivered a 2.7% reduction in costs during 2019,
MGG revenue was up 0.3% at £245.8m, gross profit was down 4.9% at £46.6m and
segment adjusted EBITDA(1) down by 25.6% at £3.1m.
OUTLOOK
Following the outbreak of COVID-19 the world is now facing a period of
significant uncertainty both from a personal and economic perspective. Since
17 March 2020 our people around the world have adjusted to discretionary home
working as restrictions on movement and social distancing are applied in
varying degrees across our geographies. I have been proud of the response and
attitude of Impellam people and, as a result of our rapidly executed business
continuity plan, the vast majority of our people were working from home within
a matter of days.
I am proud of our people and especially those who are working tirelessly, both
in our offices and at home, to supply essential key workers through this
crisis; doctors and nurses to hospitals, warehouse operatives to retailers to
keep our supermarkets' shelves stacked, care workers to care providers, and
call centre operatives to the many businesses being inundated with questions
in the travel and hospitality and catering industries around the world.
Our business has been able to operate as normal despite disruption by the day
and sometimes by the hour. As the weeks have progressed, whilst we have taken
all mitigating actions we have seen an impact on the trading performance of
the Group due to the market impact of the virus. We have a mixed portfolio of
businesses and customers and the segments that partner with the Public Sector,
Technology, Healthcare, Logistics and Life Sciences are seeing strong demand,
but COVID-19 has disrupted supply, whereas segments such as hospitality,
catering and retail are already experiencing a downward impact to demand.
We are actively and urgently preparing for different outcomes and situations
by scenario planning and applying a new level of agility to an ever-changing
world. We, like all organisations, have no experience of this type of crisis,
at this stage it is hard to predict the full extent of the impact of COVID-19,
however we have modelled various downturn scenarios. Our stress testing shows
that the Group can withstand both a material and prolonged decline in revenue,
however, there are also certain material uncertainties that exist. As a
result, we gain reasonable comfort that we have the resources to continue to
support our customers and candidates through this period and beyond as the
economy recovers. We will continue to follow advice and guidance from
governments and health authorities and our plans will evolve as the situation
changes and we will adapt continuously to deliver on our promises to all our
stakeholders.
Through all this, we have the opportunity to leverage the strategic moves we
made in 2019. The investment we have made over the last three years in
developing our culture of virtuosity, agility and innovation will stand us in
good stead as we face the challenges ahead together.
I would like to thank all Impellam people and our Board, together with our
customers and candidates, for their engagement and hard work during 2019, and
in anticipation, for their continued support, resilience and sprit as we work
together in 2020.
Julia Robertson
Group Chief Executive Officer
1. Explanations of Alternative Performance Measures are at the end of
the report.
2. Group Fill is the value of the Spend Under Management supplied by
other areas of the Group.
Group Chief Financial Officer's Review
ADOPTION OF NEW ACCOUNTING STANDARDS
In 2019, the Group adopted the new accounting standards of IFRS 9, IFRS 15 and
IFRS 16, the impact of which are included in note 1.
INTRODUCTION
Revenue for the 52-week period to 3 January 2020 against the 53-week period to
4 January 2019 was down 0.6% (1.2% at constant exchange rates) and gross
profit decreased by 1.2% (2.2% at constant exchange rates). Adjusting for the
extra trading week in 2018, both the revenue and gross profit increased.
Adjusted EBITDA(1) reduced by 6.3% to £46.7m with the impact of the 2018
additional trading week being the key driver. Administrative expenses
increased by 1.1% with costs excluding depreciation and amortisation and
impairment reducing by 1.5%. In 2018 the Education business was impaired by
£8.6m and in 2019 by £5.0m, following a revision to our projections of
future trading performance. In addition, we have seen an impairment to the
internally generated software associated with Younifi of £2.0m.
In the year, operating profit decreased by 38.2%, partly due to the additional
trading week in 2018 but also due to the increase in depreciation and
amortisation by £6.0m, arising on a full year charge on brand and customer
relationships that were reclassified in 2018.
The difference between adjusted operating profit and operating profit is
reconciled in note 2and is principally due to the impairment of intangibles
previously discussed, and separately disclosed items primarily in respect of
business transformation costs, as set out in note 4.
FOREIGN EXCHANGE
Currency movements versus Sterling positively impacted our reported
performance. Over the course of the year to December 2019, the total impact of
exchange movements on gross profit and adjusted EBITDA(1) were £2.8m positive
and £0.4m positive, respectively. Fluctuations in the rates of the Group's
key operating currencies versus Sterling continue to represent a sensitivity
for the reported performance of our business. By way of illustration, each 1
cent movement in annual exchange rates of the US Dollar impacts gross profit
by £0.6m per annum and adjusted EBITDA(1) by £0.14m per annum. The rate of
exchange between the US Dollar and Sterling over the year ended 3 January 2020
averaged USD 1.2773 and closed at USD 1.3093. As the Group expands further in
overseas territories the impact of changes in exchange rates will be greater.
Whilst the year-on-year average strength of the Dollar against Sterling
positively affected the trading result the strength of Sterling at the balance
sheet date (2019: $1.3093; 2018: $1.274) led to a lower retranslation of cash
balances denominated in foreign currencies and resulted in a £6.1m
year-on-year increase in net debt.
CAPITAL INVESTMENT
Capital expenditure on fixed assets in the period was £10.4m (2018: £10.0m),
with continued investment in strategic IT projects and property refurbishments
of key locations. The net repayment of finance leases, now disclosed as
financing activities under IFRS 16, amounted to £9.2m. The net finance
expense in the period was £8.2m (2018: £6.7m) with the increase from prior
year mainly due to the impact of IFRS 16.
INTEREST AND DEBT
Net cash generated from operations during the period was £49.5m (2018:
£33.4m). Strong underlying cash performance was the result of the continued
focus on cash collections, overdue debt reduction and working capital
management activities. Cash conversion (operating profit to net cash generated
from operations) was 356% in 2019 (2018: 148%); however, using the cash
conversion of net cash generated to adjusted operating profit gives 138%
(2018: 81%) which is more reflective of the underlying business performance.
At the end of 2019, DSO stood at 39.4 days (2018: 39.5 days).
Finance expense increased to £9.0m (2018: £6.8m). £0.9m of capitalised
finance costs were written off following the negotiation of new facilities and
£1.3m of lease interest is included as a finance expense following the
adoption of IFRS16. Interest cost on facilities remained constant at £6.5m.
At the balance sheet date net debt was £96.7m. Excluding the adjustments for
IFRS 16 net debt was £72.3m compared to £71.7m in 2018, an increase of
£0.6m. The net cash flow from operations was primarily utilised as follows -
· Investment in fixed assets and software development: £10.4m
· Net lease repayment: £9.2m
· Acquisition of Flexy: £2.9m
· Share buybacks: £10.8m
· Net interest paid on borrowings and leases: £7.4m
· Cash associated with the discontinued operations: £2.5m
· Lower translation of overseas cash balances: £6.1m
The Group's operations are financed by retained earnings and bank borrowings.
The Group has in place a £240m global Revolving Credit Facility ('RCF') with
an accordion element of an additional £50m. This provides the Group with the
flexibility to fund its working capital as well as future acquisitions. Rates
of interest for the RCF are based on LIBOR plus a margin calculated on the net
debt to adjusted EBITDA(1) leverage. Incorporated into the RCF is a letter of
credit facility which at the end of 2019 amounted to £3.35m (2018: £5.1m).
On 10 March 2020, the Group exercised the option to extend £220m of the
facility by one year to 1 April 2023.
The Group takes advantage of a number of non-recourse financing agreements
organised by clients of the Group to allow for the acceleration of payment of
their receivables. At the end of 2019, these amounted to £12.6m (2018:
£18.5m). These agreements accrue interest at between 0.65% and 1.75% over
LIBOR.
A significant priority for the Group continues to be to focus on the
conversion of operating profit into sustained positive cash flow by
controlling working capital. The Group measures three covenants as required by
the facility - interest cover, adjusted leverage ratio (defined as net debt
less loan notes and restricted cash to adjusted EBITDA(1)) and debtor cover.
All covenants were met during the year.
Borrowing levels are controlled by the Group Finance department, which manages
treasury risk in accordance with policies set by the Board.
The Group's financial liabilities are denominated primarily in Sterling. At
December 2019, US$35m of the RCF was drawn in US Dollars to provide a natural
hedge against the US operations' profit streams and net assets which, when
reported at a Group level, are affected by movements in exchange rates.
Exposure to currency risk at a transactional level is generally minimal, with
most transactions being carried out in local currency.
TAXATION
The tax charge in the period of £0.9m (2018: £2.8m) represents an effective
tax rate of 15.8% (2018: 17.4%). The tax charge is comprised of corporate tax
charges arising on the Group's activities in the UK and overseas. At the end
of the period, the Group has recognised a deferred tax asset on all federal
tax losses in the US on the basis that the Group remains confident that the US
business will continue to be profitable in the foreseeable future.
The Group had a UK Corporation Tax Charge of £0.7m (2018: £1.4m) and an
overseas corporate income tax charge of £1.3m (2018: £2.5m). The effective
current tax rate on the UK business is 11.0% (2018: 17.5%). This is lower than
the UK statutory rate of Corporation Tax which is 19.0% (2018: 19.0%). The
difference is principally due to tax credits arising on fair value adjustments
charged to the profit and loss account on consolidation offset partially by
charges to the profit and loss account which are not deductible for
corporation tax purposes.
The overseas current tax charge arises mainly in Australia where the highest
corporate income tax rate is 30%.
The Group's contribution to the UK Treasury in the period, amounting to
£288.0m (2018: £312.4m), was remitted in the form of VAT, income tax,
national insurance, and Corporation Tax. Of this amount, employer's national
insurance, apprenticeship levy, irrecoverable VAT and Corporation Tax of
£50.0m, (2018: £52.0m) was a cost to the business.
EARNINGS PER SHARE
Continuing basic earnings per share decreased to 9.8p (2018: 25.8p) as
underlying profit after tax from continuing operations reduced by £7.7m. This
decrease was driven by the impact of the additional trading week in 2018 and
the increase in depreciation and amortisation of tangible and intangible
assets. The weighted average number of shares in 2019 was 48.5m, 1.7m lower
than 2018 due to the ongoing share buyback programme.
Continuing adjusted earnings per share decreased to 47.6p (2018: 61.5p) and
reflects the underlying performance of the business, excluding separately
disclosed items, impairment and amortisation of acquired intangibles and their
respective taxation impact.
CAPITAL MANAGEMENT
The Group's capital base is primarily used to finance its working capital
requirement, the key component of which is trade receivables. Trade
receivables in the staffing and support services sectors are managed according
to a range of DSO targets. Terms of trade are monitored, and the approval of
extended payment terms requires senior finance involvement. In some of the
Group's Managed Services businesses, the amounts payable to third-party
suppliers are not due until shortly after the receipt of the client
receivable.
As noted above, the Group has committed facilities that ensure there is
sufficient liquidity to meet ongoing business requirements. The primary
objectives of the Group's capital management are to ensure that it maintains a
good credit rating in order to support its business, maximise shareholder
value and to safeguard the Group's ability to continue as a going concern.
GOING CONCERN
After making appropriate enquiries, the Directors have a reasonable
expectation that the Company and the Group have adequate resources to continue
in operational existence for the foreseeable future.
In coming to their conclusion, the Directors have considered the Group's
profit and cash flow plans for the coming period, and in the light of the
outbreak of COVID-19 have run various downside "stress test" scenarios.
These scenarios assess the Government's predicted growth rate of the virus in
our key trading markets of the UK, USA and Australia, and then apply
progressively more challenging downside revenue sensitivities over a six-month
period from March to September 2020.
These stress tests indicate the Group can withstand a material and prolonged
decline in revenues including a peak revenue decline of over 40% in May and
June 2020, after which forecast improvements in activity are modelled in the
second half of 2020.
The projections assess our potential debt requirements against the Group's
£240m of committed facilities and against the key covenant ratios' over this
period. The Group has cyclical working capital requirements which increase
during periods of higher trading levels and therefore if there is a
significant short-term decline in trading the working capital requirements and
therefore net debt would initially reduce providing a natural hedge against a
sharp downturn. In our projections, as business activity increases our working
capital requirements and net debt levels would rise, but to levels within our
facility. In these projections the Group's key covenant ratio of net debt
being less than 2.5x the last twelve months EBITDA is not breached at the
quarterly testing points.
In preparing these stress test scenarios, we have included the cash benefit
from the UK Government's programme to allow business deferral of VAT payments,
a cash benefit of c£35m over the period to April 2021. The scenarios include
certain cost mitigation actions, such as reduced performance bonus, travel and
entertainment, marketing activity, reduced capital expenditure and
postponement in share buybacks, and, furloughing of certain staff. The
scenarios do not include headcount reductions. In the event that there is a
more significant downturn than in these scenarios there are further mitigating
actions which could include but are not limited to, further reductions in
capital expenditure, further reductions in non-business critical expenditure
as well as the potential to reduce working hours and headcount reductions.
Like all organisations, we have no experience of this type of crisis, at this
stage it is hard to predict the full extent of the impact of COVID-19, however
under the significant stress test scenarios we have run, the Group could
withstand a material and prolonged decline in revenue and continue to operate
within the available banking facilities. Accordingly, the Group and the
Company continues to adopt the going concern basis in preparing its Financial
Statements.
However, if the impacts of COVID-19 are worse or more prolonged than the
Directors' expectations, and further mitigating actions are not sufficient,
the Group may need to seek additional support.
Given the lack of certainty that COVID-19 will have on the Group's customers
and the markets in which it operates, which may result in a more pronounced
downturn than expected, there is a material uncertainty which may cast
significant doubt on the Group's and the Company's ability to continue as a
going concern. The financial statements do not include any adjustments should
the going concern basis of preparation be inappropriate.
DIVIDENDS AND SHARE BUYBACK
In July 2019 the Board announced the continuation of the share buyback
programme, started in 2018, whereby it will return cash to shareholders though
the purchase of Ordinary Shares in the Company, up to an aggregate market
value of £12m over a period of 12 months. As previously noted above following
the outbreak of COVID-19, the Board has approved the suspension of the share
buyback programme. While the Company has suspended its share buyback
programme, it retains the authorities to buy back shares in the future [and
may consider ad hoc purchases of shares if deemed appropriate by the board.
On 20 February 2019 the Board announced a dividend in specie in respect of the
Carlisle Support Services (CSS) Group demerger transaction amounting to £1.7m
that was paid on 8 March 2019 to all the shareholders on the register at 1
March 2019.
INSURANCE
The Group maintains a comprehensive insurance programme with several reputable
third-party underwriters. Insurance is brokered at a Group level. The Group's
insurance policies are reviewed and updated annually to ensure that there is
adequate cover for insurable risks and that the terms of those policies are
optimised.
BREXIT
On 31 January 2020 the UK left the European Union, entering a transition
period due to end on 31 December 2020. During this period there remains
uncertainty as to the detail of the future trading relationship that will
exist between the UK and the European Union and to some extent the rest of the
UK's global trading partners. The continued uncertainty could have a
detrimental impact on candidate confidence to move jobs, or business
confidence to invest and take on new staff. The impact on this could be
reduced volumes of placements in our UK business and therefore reduced fees.
Forward visibility remains limited and outlook uncertain, but as ever we will
monitor activity levels closely.
OUTLOOK
Notwithstanding the uncertainties noted above, we will continue to leverage
our strategies to balance the portfolio, target growth in overseas markets,
maintain strong cost control and cash management, implement digital platforms
that drive improved productivity and improved conversion of gross profit to
operating profit.
Tim Briant
Group Chief Financial Officer
Independent auditor's report to the shareholders of Impellam Group plc on the
preliminary announcement of annual results
As the independent auditor of Impellam Group Plc ('the company') we have been
asked by the directors to agree to the publication of the company's
preliminary statement of annual results for the period ended 3 January 2020
which includes key operating highlights, Chairman's statement, narrative
disclosures and the financial results. We are not required to agree to the
publication of the Q1 trading statement.
Use of our report
This report is made solely to the company's members, as a body, in accordance
with the terms of our engagement. Our work on the preliminary statement of
annual results has been undertaken so that we might state to the company's
members those matters we have agreed to state to them and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's members as a
body, for our work on the preliminary statement of annual results, for this
report, or for the opinions we have formed.
Responsibilities of directors and auditor
The directors of the company are responsible for the preparation, presentation
and publication of the preliminary statement of annual results. We are
responsible for agreeing to the publication of the preliminary statement of
annual results, having regard to the Financial Reporting Council's Bulletin
"The Auditor's Association with Preliminary Announcements made in accordance
with the requirements of UK Listing Rules".
Status of our audit of the financial statements
Our audit of the annual financial statements of the Company is complete and we
signed our auditor's report on 24 April 2020. Our auditor's report is not
modified and contains a material uncertainty in relation to impact on going
concern of Covid-19.
Our auditor's report on the full financial statements contained the following
information regarding key audit matters and how they were addressed by us in
the audit, our application of materiality and the scope of our audit.
Risk name Description How we addressed the key audit matter in the audit
Fraud in revenue recognition - incomplete temporary contractor revenue The Group processes a large volume of data in relation to contractor revenue We considered whether the revenue and cost recognition policies comply with
involving a number of systems that operate independently from each other. Accounting Standards, having particular regard to the impact of the adoption
of IFRS 15 during the year.
The risk in relation to temporary contractors is that revenue has been
misstated in the period in order to meet financial targets or commissions in
relation to candidate placements. The risk is focussed around the end of the
financial year. We obtained an understanding of the key revenue streams in relation to
temporary contractor placements, we assessed the design and implementation of
As IFRS 15 was adopted in this period, there is a risk of non-compliance with the key controls within these streams.
this new standard resulting in errors in the recognition of revenue amounts.
We compared management's impact assessment of the adoption of IFRS 15,
together with supporting information and analysis, with the principles of the
accounting standard and disclosure requirements.
We examined a sample of contract terms covering the significant revenue
streams in the business.
On a sample basis, with reference to these contractual terms, we agreed the
revenue recognised was in agreement to underlying supporting data (such as
timecards submitted). Where there were judgements involved in the recognition
of contractual commitments and the application of differential pricing
structures that drives the recognition of revenue and associated costs, these
have been corroborated to evidence supporting these judgements.
We considered the appropriateness of the cut-off adjustments made by
management by agreeing a sample of temporary placements to timesheets with
reference to the period worked.
We inspected a sample of credit notes raised subsequent to the year end in
order to assess the validity of the sales invoices raised in the financial
period.
Key Observations
We found instances of material 'gross-up' adjustments in relation to the
presentation of temporary contractor revenue both in the current and prior
years - see note 12. There was no profit impact from these adjustments.
We found no other matters to report with regards to temporary contractor
revenue.
Revenue recognition - complex contract accounting on global managed service Certain entities within the Group provide managed services to their clients. We compared management's impact assessment of the adoption of IFRS 15,
contracts The contracts usually span several financial periods and have a period prior together with supporting information and analysis, with the principles of the
to commencement where implementation costs are incurred. The contracts agreed accounting standard and disclosure requirements.
contain a number of complex performance obligations and associated rebate
agreements.
The risk relates to the accounting and potential understatement of these We evaluated the Group's control environment and performed design and
rebate agreements resulting in a material error within the revenue stated for implementation testing in rebate accounting and recognition of implementation
the period. costs at inception of a new contract.
There is also judgment involved in appropriately recognising implementation
costs in relation to the upfront implementation costs and subsequent release
over the contract life. We audited a sample of contract terms covering the significant revenue streams
in the business. We understood the types of costs included in implementation
The audit risk includes all aspects noted above. costs with reference to timecards and the job roles of the individuals. We
ensured that these met the criteria to be recognised as implementation costs
and the appropriateness of the release period.
We considered the completeness of the rebate liability by reviewing key
contracts and forming an expectation as to the liability position.
We assessed the accuracy of the rebate liability by testing a sample of
contracts. We re-calculated the rebate liability with reference to the terms
of the supplier contracts and volume of placements.
Key Observations
We identified a material misstatement in relation to implementation costs and
the 'principle v agent' treatment of a contract in the prior year - see note
12.
We found no other matters to report with regards to global managed service
contracts.
Goodwill and intangibles impairment The Group's consolidated balance sheet includes goodwill and brand We compared prior year forecasts against the Group's results, to gain an
intangibles, principally arising from historical acquisitions. understanding of the Group's ability to produce robust and accurate forecasts.
The risk is that the goodwill and brand values allocated to cash generating
units are not recoverable and should be impaired. Based on our knowledge of
the markets operated in and results for the period, we reviewed the Cash We challenged the robustness of key assumptions, including revenue growth
Generating Units (CGU) and had a particular focus where the cash generated rates, profitability assumptions and the discount rate, based on our
would not support the assets held. understanding of the CGUs through re-performance of calculations, and by
comparing the assumptions used with other, similar, recruitment firms. Where
As a result of this, our work was focussed on the Education and Engineering appropriate, we have sensitised management's judgements to consider the impact
CGU's due to the lower headroom forecast on these CGU's. of these not being achieved.
Due to the inherent uncertainty involved in forecasting and discounting cash
flows, which are the basis of the assessment of recoverability, this is one of
the key judgemental areas of the audit. We utilised an auditor's expert to assess management's key assumption inputs.
This was done with comparison to industry standard data points that are
The effect of the uncertainty relating to the inputs of the impairment review utilised in such models.
is that there are ranges of reasonable outcomes that may be greater than our
materiality for the financial statements.
The financial statements disclose the sensitivity estimated by the Group. Key observations
We identified an adjustment that resulted in an increase in impairment.
We have no other matters to report with regards to Goodwill and Intangibles
impairment.
Compliance with specific laws and regulations - holiday pay and client credits The Group is subject to both local and international legal and regulatory We considered the jurisdictions the Group operates in and have applied a
requirements that vary between the different industries the Group operates in. risk-based approach to assessing the impact of non-compliance with laws and
regulations.
The Group holds a number of balances in relation to its ongoing obligations to
comply with the regulatory and legal environment - varying levels of judgment
is required to estimate the impact of these on the financial statements.
We held meetings with the Group's legal counsel both in the UK and in the USA
The key area of compliance relates to workers' rights, such as holiday pay, to understand areas of non-compliance with laws or regulation and the progress
and retention of customer unclaimed payments. of any significant ongoing legal areas.
We have spent a significant amount of time in assessing the risk of
non-compliance with these requirements. Any non-compliance may result in
fines, unrecorded liabilities and reputational damage to the Group - a We circulated legal confirmations to key external counsel to confirm the
combination of these may affect the Group's ability to continue trading. existence and completeness of any potential claims or areas of non-compliance.
We assessed whether the disclosures within the consolidated financial
statements adequately reflected the liabilities and judgements made in
relation to the ongoing legal claims and compliance matters, including those
items treated as Separately Disclosed Items.
We specifically assessed by recruitment brand, the Group's policies and
practices in relation to holiday pay, in the context of relevant legal
requirements. We reviewed the basis and appropriateness of holiday pay
accruals and level of pay-out.
We assessed the Group's treatment of client credits and unclaimed payments,
including the Group's polices to provide for in, and release such to, the
income statement.
Key observations
We identified a material prior year adjustment in relation to customer
unclaimed payments - see note 12.
We have no other matters to report with regards to compliance with key laws
and regulations applicable to the Group.
IFRS 16 - implementation of leases IFRS 16 Leases is effective for the current financial year. The impact is We reviewed management's adoption papers and workings and assessed the
disclosed in summary of significant accounting policies within note 1. implementation of key controls around first year IFRS 16 adoption.
In order to compute the impact on the Groups assets, liabilities and income We assessed the appropriateness of the discount rate applied in determining
statement the Group has made a number of key judgments and estimates. lease asset and liabilities with input from our valuation specialists
The key audit matter is focused around determining the appropriate discount We verified the accuracy of underlying data by agreeing a sample of leases to
rate applied to each lease. contact with reference to key terms.
There is a risk that the lease data is inaccurate or incomplete and is not We considered completeness by reviewing the reconciliation of the groups
appropriately included within the transition and subsequent accounting operating lease commitment disclosure in the previous period to the lease data
entries. used in the calculation. Additionally we selected a sample of lease
expenditure and ensured inclusion in the lease liability.
Finally, there is a risk that the disclosures in the financial statements are
insufficient and prevent the user of the financial statement to understand the We assessed the disclosure included within the financial statements.
impact of judgments and estimates.
Key observations
As a result of our testing, we identified a material adjustment that was
processed satisfactorily.
We have no other matters to communicate in respect of the Group's transition
to IFRS 16.
Procedures performed to agree to the preliminary statement of annual results
In order to agree to the publication of the preliminary statement of annual
results of the company we:
· checked the accuracy of extraction of the financial information in
the preliminary statement from the audited financial statements of the
company;
· considered whether any "alternative performance measures" and
associated narrative explanations may be misleading; and
· read the management commentary and considered whether it is in
conflict with the information that we have obtained in the course of our
audit.
Mark Cardiff (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
24 April 2020
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
Consolidated income statement
For the fifty-two weeks ended 3 January 2020
52 weeks (As restated) 53 weeks
3 January 2020 4 January 2019
Notes £m £m
Continuing operations
Revenue 2 2,254.8 2,267.3
Cost of sales (1,980.7) (1,989.8)
Gross profit 2 274.1 277.5
Administrative expenses (261.4) (254.0)
IFRS 9 impairment losses 1.2 (1.0)
Operating profit 2 13.9 22.5
Adjusted operating profit 36.0 41.4
Amortisation of brand value and customer relationships (10.2) (4.2)
Separately disclosed items 4 (4.9) (5.7)
Impairment of goodwill (1.6) (8.6)
Impairment of other intangible items (5.4) -
Share-based payment - (0.4)
Operating profit 13.9 22.5
Finance income 0.8 -
Finance expense 5 (9.0) (6.8)
Profit before taxation 5.7 15.7
Taxation 6 (0.9) (2.8)
Profit for the period from continuing operations 4.8 12.9
Profit from discontinued operations, net of tax 0.7 0.4
Profit for the period attributable to owners of the parent Company 5.5 13.3
Earnings per share for equity holders of the parent Company
Basic 7 11.2 p 26.5p
Diluted 7 11.2 p 26.5p
Consolidated statement of comprehensive income
For the fifty-two weeks ended 3 January 2020
52 weeks (As restated)
3 January 2020 53 weeks
4 January 2019
£m £m
Profit for the period 5.5 13.3
Items that will not be subsequently reclassified into income:
Remeasurement of defined benefit liability - 0.1
Items that may be subsequently reclassified into income:
Currency translation differences (net of tax) (4.3) 5.6
Total comprehensive income for the period, net of tax 1.2 19.0
Total comprehensive income for the period attributable to:
Equity holders of the Parent Company 1.3 19.1
Non-controlling interest (0.1) (0.1)
Total comprehensive income for the period, net of tax 1.2 19.0
Consolidated balance sheet
As at 3 January 2020
3 January 2020 (As restated) (As restated)
4 January 2019 29 December 2017
Notes £m £m £m
Non-current assets
Property, plant and equipment 6.6 6.7 7.3
Right-of-use assets 10 25.4 - -
Goodwill 148.0 156.2 160.4
Other intangible assets 117.8 131.1 131.7
Financial assets 1.5 1.4 1.4
Deferred tax assets 13.6 15.3 13.2
Trade and other receivables 5.7 1.2 1.2
318.6 311.9 315.2
Current assets
Trade and other receivables 574.7 573.5 693.9
Tax receivable 2.5 - -
Cash and cash equivalents 132.3 117.1 137.9
709.5 690.6 831.8
Total assets 1,028.1 1,002.5 1,147.0
Current liabilities
Short-term borrowings 24.7 25.1 73.2
Lease liabilities 10.6 - -
Trade and other payables 550.4 556.8 684.0
Taxation payable 1.8 1.7 4.2
Provisions 3.6 0.9 1.1
591.1 584.5 762.5
Net current assets 118.4 106.1 69.3
Non-current liabilities
Long-term borrowings 140.9 123.8 103.0
Lease liabilities 21.1 - -
Other payables 1.6 1.6 0.9
Provisions 5.4 3.4 1.1
Deferred tax liabilities 21.5 23.1 22.5
190.5 151.9 127.5
Total liabilities 781.6 736.4 883.3
Net assets 246.5 266.1 257.0
Equity
Issued share capital 0.5 0.5 0.5
Share premium account 30.1 30.1 30.1
30.6 30.6 30.6
Other reserves 120.3 124.6 120.9
Retained earnings 95.9 110.9 105.4
Total equity attributable to owners of the parent Company 246.8 266.1 256.9
Non-controlling interest (0.3) - 0.1
Total equity 246.5 266.1 257.0
Consolidated statement of changes in equity
For the fifty-two weeks ended 3 January 2020
Total share capital and share premium Other reserves Retained earnings Total equity attributable to equity owners of the parent Non-controlling interest Total equity
£ m £ m £ m £ m £ m £ m
5 January 2019 30.6 124.6 110.9 266.1 - 266.1
Adoption of IFRS 9 - - (0.2) (0.2) - (0.2)
5 January 2019 - as restated 30.6 124.6 110.7 265.9 - 265.9
Profit for the period - - 5.8 5.8 (0.3) 5.5
Other comprehensive income - (4.3) - (4.3) - (4.3)
Total comprehensive income in the period - (4.3) 5.8 1.5 (0.3) 1.2
Transactions with owners, recorded directly in equity
Purchase and cancellation of own shares - - (10.8) (10.8) - (10.8)
De-merger charge - - (9.8) (9.8) - (9.8)
3 January 2020 30.6 120.3 95.9 246.8 (0.3) 246.5
Consolidated cash flow statement
For the fifty-two weeks ended 3 January 2020
52 weeks (As restated)
3 January 2020 53 weeks
4 January 2019
£m £m
Cash flows from operating activities
Profit before taxation 5.7 15.7
Adjustments for:
Depreciation and amortisation 29.4 12.3
Impairments 7.0 8.6
Loss on disposal 0.2 0.2
Net finance expense 8.2 6.8
Discontinued operations 0.7 (1.7)
Share-based payment - 0.4
51.2 42.3
(Increase) / Decrease in trade and other receivables (8.1) 96.1
Increase / (Decrease) in trade and other payables 6.0 (100.6)
Increase in provisions 4.8 2.1
Cash generated by operations 53.9 39.9
Taxation paid (4.4) (6.5)
Net cash generated by operating activities 49.5 33.4
Cash flows from investing activities
Acquisition of subsidiary (2.9) -
Purchase of property, plant and equipment (3.6) (3.1)
Purchase of intangible assets (6.8) (6.9)
Increase in other financial assets (0.1) -
Interest received 0.8 -
Net cash from investing activities (12.6) (10.0)
Cash flows from financing activities
Increase / (decrease) in short-term borrowings 16.8 (27.6)
(Decrease) / increase in overdraft (0.9) 2.3
Purchase and cancellation of own shares (10.8) (3.5)
Interest paid on lease liabilities (2018: Interest element of net finance (1.3) -
lease
payments)
Other finance expenses paid (6.8) (6.8)
Repayment of lease liabilities (2018: Capital element of net finance lease (12.1) 0.4
payments)
Receipt from lease debtors 2.9 -
Cash outflow on discontinued operations (2.5) -
Dividends paid - (6.8)
Net cash inflow / (outflow) from financing activities (14.7) (42.0)
Net increase / (decrease) in cash and equivalents 22.2 (18.6)
Opening cash and cash equivalents 117.1 137.9
Effect of foreign exchange rate movements (7.0) (2.2)
Closing cash and cash equivalents 132.3 117.1
Notes to the final financial statements
1 Basis of preparation
I. Statement of compliance
The consolidated financial statements have been prepared on a going concern
basis in accordance with International Financial Reporting Standards (IFRS) as
adopted by the European Union and those parts of the Companies Act 2006
applicable to companies reporting under IFRS.
II. Statutory information
The financial information for the 52 weeks to 3 January 2020 does not
constitute the statutory accounts of the Group for the relevant period within
the meaning of section 434 of the Companies Act 2006. Such statutory accounts
will be completed in due course and delivered to the Registrar of Companies.
III. Accounting policies, new IFRS and interpretations
The accounting policies used in this report are with those applied at 3
January 2020, where we have adopted the following new IFRS.
a) IFRS 9 - Financial Instruments. A review of the credit worthiness of
all clients, allowing for the nature of both the contracts and the clients
meant that a £0.2m adjustment to the expected credit loss provision was
required on adopting this standard.
b) IFRS 15 - Revenue from Contracts with Customers. No adjustments were
required as a result of the adoption of IFRS 15.
c) IFRS 16 - Leases. The Group reviewed its portfolio of leases as at 5
January 2019 and decided to account for IFRS 16 on the modified retrospective
approach using a single discount rate for portfolio leases with similar
characteristics. The characteristics considered as part of this grouping
include the asset leased, geographic locations of the leases and the remaining
lease term. Advantage has been taken of the exemption provided for low value
leases. The Group has applied the practical expedient within the standard
whereby IFRS 16 has been applied to contracts that were previously identified
as leases when applying IAS 17 Leases and IFRIC 4 determining whether an
arrangement contains a lease. Where an individual lease had been adjudged to
be onerous prior to the application of IFRS 16 the Group has adjusted the
carrying value of the right-of-use asset to the carrying value of the related
provision. This method of adoption means that there is no prior period
adjustment required and all leases are recognised at the start of the period
as if that was when they were taken out. The value of the leased assets on
adoption of IFRS 16 was £41.2m with £36.6m recorded as a lease liability.
No other 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
Fifty-two weeks ended 3 January 2020
Revenue Gross profit Segment
Adjusted EBITDA
£ m £ m £ m
Global Talent Acquisition and Managed Workforce Solutions 757.1 78.0 18.5
Global Specialist Staffing 649.1 55.5 16.7
Regional Specialist Staffing 650.3 94.0 11.2
Healthcare 245.8 46.6 3.1
Inter-segment revenues (47.5) - -
Operating segments 2,254.8 274.1 49.5
Fifty-three weeks ended 4 January 2019 (as restated)
Revenue Gross profit Segment
Adjusted EBITDA
£ m £ m £ m
Global Talent Acquisition and Managed Workforce Solutions 715.8 75.5 18.2
Global Specialist Staffing 682.2 54.9 16.8
Regional Specialist Staffing 682.2 97.8 13.5
Healthcare 247.0 49.3 4.4
Inter-segment revenues (59.9) - -
Operating segments 2,267.3 277.5 52.9
52 weeks (As restated) 53 weeks
3 January
4 January
2020
2019
£ m £ m
Segment adjusted EBITDA 49.5 52.9
Corporate costs (2.8) (3.1)
Adjusted EBITDA 46.7 49.8
Net IFRS 16 effect (0.3) -
Amortisation and depreciation (10.2) (8.2)
Loss on disposal (0.2) (0.2)
Adjusted operating profit 36.0 41.4
Amortisation of acquired intangibles (10.2) (4.2)
Impairments (7.0) (8.6)
Separately disclosed items (4.9) (5.7)
Share-based payment - (0.4)
Operating profit 13.9 22.5
Net Finance expense (8.2) (6.8)
Taxation charge (0.9) (2.8)
Profit for the period from continuing operations 4.8 12.9
The above table reconciles the adjusted Earnings Before Interest, Tax, Depreciation and Amortisation ('EBITDA'), which also excludes separately disclosed items and share-based payments to the standard profit measure under International Financial Reporting Standards (Operating Profit). This is the Alternative Profit Measure used when discussing the performance of the Group. The Directors believe that adjusted EBITDA is the most appropriate approach for ascertaining the underlying trading performance and trends as it reflects the measures used internally by senior management for all discussions of performance, including Directors' remuneration, and also reflects the starting profit measure used when calculating the Group's banking covenants. All discussions within the Group on segmental and individual brand performance refer to adjusted EBITDA. Corporate costs represent costs associated with being a listed company with a wide portfolio of brands and therefore are not allocated to the segments.
As a result of the adoption of IFRS 16 in the current financial year, the Group is moving to adjusted operating profit as its Alternative Profit Measure, to include depreciation and amortisation of assets but excluding amortisation of acquired intangibles, and this is included in the above table for reference. As this transition has led to different accounting policies in the current and comparative years, the segmental analysis has been completed with operating lease payments included within the segment numbers so that the year-on-year performance is comparable. An adjustment is therefore made to remove these costs to get to Adjusted EBITDA.
Adjusted EBITDA is not defined by IFRS and therefore may not be directly comparable with other companies' alternative profit measures. It is not intended to be a substitute, or superior to, IFRS measurements of profit.
Separately disclosed items are costs or income that have been recognised in the income statement which the Directors believe, due to their nature or size, should be disclosed separately to give a more comparable view of the year-on-year underlying financial performance (note 4).
Share-based payments are shown separately due to their size in order to give a more comparable view of the year-on-year underlying financial performance.
3. Discontinued operations
In March 2019 the Group de-merged Carlisle Support Services Group Ltd and its subsidiaries ('CSS') by way of a dividend-in-specie and, as such, the demerger was accounted for through reserves.
The CSS segment was not previously classified as held-for-sale or as a discontinued operation as, at the release of the 2018 results, no decision had been made as to the disposal of the segment. The comparative consolidated statement of profit or loss and consolidated statement of comprehensive income has been re-presented to show the discontinued operation separately from continuing operations.
Subsequent to the disposal, the Group has continued to trade with the discontinued operation. Intra-Group transactions have been fully eliminated in consolidated financial results and management has elected not to attribute the elimination of transactions between the continuing operations and the discontinued operation before the disposal as the level of this is small in comparison to the total trade of both the continuing and discontinued operation.
Results from discontinued operations
52 weeks 53 weeks
3 January 4 January
2020 2019
£m £m
Revenue 9.6 56.7
Cost of sales (8.7) (51.9)
Gross profit 0.9 4.8
Administrative expenses (0.2) (4.4)
Profit from operating activities 0.7 0.4
Taxation - -
Profit from discontinued operations 0.7 0.4
Cash flows relating to discontinued operations 52 weeks 53 weeks
3 January 4 January
2020 2019
£m £m
Net cash generated by operating activities 0.5 (1.7)
Net cash (outflow) from financing activities (0.1) (0.1)
Net cash flows for discontinued operations 0.4 (1.8)
Effect of disposal on the financial position of the Group On disposal
£m
Property, plant and equipment 0.5
Goodwill 4.8
Deferred tax assets 0.3
Trade and other receivables 9.0
Cash and cash equivalents 2.5
Trade and other payables (8.8)
Defined benefit pension asset 0.1
Lease liabilities (0.3)
Net assets and liabilities 8.1
4 Separately disclosed items
52 weeks 53 weeks
3 January 2020 4 January 2019
£ m £ m
Group transformation costs ((1)) 3.8 -
Group de-merger ((2)) 0.7 -
Adjustments to contingent consideration ((3)) (0.3) 0.5
Legal claim costs ((4)) 0.7 3.2
US Businesses restructuring and integration ((5)) - 2.0
Total included in Operating profit 4.9 5.7
Finance expense - separately disclosed ((6)) 0.9 -
1) In 2019 the Group commenced a transformation programme looking at all
aspects of the business including structure, people, IT and individual
businesses. This process remains ongoing and will generate further costs in
2020. These costs are one-off in nature and have been disclosed in order not
to distort the underlying trading performance of the business
2) The Group de-merged Carlisle Support Services Group in 2019, incurring
costs of £0.7m. These costs are one-off in nature and have been disclosed in
order not to distort the underlying trading performance of the business
3) Contingent consideration payments linked to individuals' continuing
employment in the business generated a £0.3m credit in relation to the
acquisition of Global Group (UK) Ltd (2015: £0.5m). These are of such
significance that they are shown separately so as to not distort the reporting
of the underlying performance of the respective businesses
4) In 2018 the Group had an ongoing litigation matter for which a provision
for settlement and associated legal costs of £3.0m has been made. Following
further legal advice, in 2019 the provision has been reduced to £1.0m. The
Group are also considering a settlement in relation to a contract for which a
provision of £2.3m has been made. These are disclosed separately due to their
one-off nature and significance
5) US Business restructuring and integration 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 performance. Following the acquisition of
Bartech at the end of 2015 the Group has gone through a three-year programme
to enable the realisation of cost and revenue synergies and ensure the right
structure of Impellam North America is in place. This includes costs related
to the integration of the Bartech business to Impellam systems, processes and
policies. This programme has concluded at the end of 2018. All other costs
related to restructures within the individual Impellam brands have been
included in the trading results as they are not deemed significant
6) Finance costs previously capitalised have been written off due to the
negotiation of a new Revolving Credit facility during the period.
5 Finance expense
Finance expense 52 weeks 53 weeks
3 January 2020 4 January 2019
£m £m
Revolving credit facilities 6.5 6.5
Write off capitalised finance costs (note 4) 0.9 -
Lease interest payable 1.3 -
Other interest expense 0.3 0.3
Total finance expense 9.0 6.8
6 Taxation
Tax charge / (credit) in the income statement
52 weeks 53 weeks
3 January 2020 4 January 2019
£m £m
Current income tax
UK corporation tax on results for the period 0.8 1.7
Adjustments in respect of previous periods (0.1) (0.3)
0.7 1.4
Foreign tax in the period 1.3 2.5
Total current income tax 2.0 3.9
Deferred tax credit (1.1) (1.1)
Total taxation charge in the income statement 0.9 2.8
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
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. As there were no
material changes to current or comparative results as a result of the initial
adoption of the new accounting standards referenced in note 1, there has been
no adjustment to the results below.
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 zero options outstanding
at 3 January 2020 (2018: zero),
Excluding the 19,841 shares owned by The Corporate Services Group Ltd Employee
Share Trust, the weighted average number of shares in 2019 is 48,543,107
(2018: 50,171,830) and the fully diluted average number of shares is
48,562,948 (2018: 50,191,671). The calculations of both basic and diluted
earnings per share ('EPS') are based upon the following consolidated income
statement data:
52 weeks (As restated) 53 weeks
3 January 2020 4 January 2019
£m £m
Continuing profit for the period 4.8 12.9
Discontinued profit for the period 0.7 0.4
Total profit for the period 5.5 13.3
Separately disclosed items (net of tax) 4.1 6.0
Impairment of goodwill 1.6 8.6
Impairment of other intangible assets 4.4 -
Acquired intangibles amortisation (net of tax) 8.2 3.3
Total adjusted profit 23.8 31.2
Continuing adjusted profit 23.1 30.8
Discontinued adjusted profit 0.7 0.4
Weighted average number of shares 48,543,107 50,171,830
52 weeks (As restated) 53 weeks
3 January 2020 4 January 2019
Basic EPS Pence Pence
Continuing unadjusted basic earnings per share 9.8 25.8
Discontinued unadjusted basic earnings per share 1.4 0.7
Total unadjusted basic earnings per share 11.2 26.5
Separately disclosed items (net of tax) 8.4 11.9
Impairment of goodwill 3.3 17.1
Impairment of other intangible assets 9.2 -
Acquired intangibles amortisation (net of tax) 16.9 6.7
Total adjusted basic earnings per share 49.0 62.2
Continuing adjusted basic earnings per share 47.6 61.5
Discontinued unadjusted basic earnings per share 1.4 0.7
Fully diluted weighted average number of shares 48,562,948 50,191,671
52 weeks (As restated) 53 weeks
3 January 2020 4 January 2019
Diluted EPS Pence Pence
Continuing unadjusted diluted earnings per share 9.8 25.8
Discontinued unadjusted diluted earnings per share 1.4 0.6
Total unadjusted diluted earnings per share 11.2 26.4
Separately disclosed items (net of tax) 8.5 11.9
Impairment of goodwill 3.3 17.1
Impairment of other intangible assets 9.1 -
Acquired intangible asset amortisation (net of tax) 16.9 6.7
Total adjusted diluted earnings per share 49.0 62.1
Continuing adjusted diluted earnings per share 47.6 61.5
Discontinued unadjusted diluted earnings per share 1.4 0.6
8 Business combinations
Global Group (UK) Limited
On 30 July 2015, the Group acquired 100% of the shares of Global Group (UK)
Limited, an unlisted company incorporated in the UK in exchange for cash.
Global Group is a specialist doctors' locum recruitment business operating in
Ireland, Australasia and the UK, which is complementary to the Medacs business
and propels the healthcare business forward significantly outside the UK.
Contingent consideration payments arising on the acquisition of Global Group
(UK) Limited which are linked to the continued employment of certain
individuals are being accrued through the profit and loss account over the
earnout periods until 2019. A release of £0.3m (2018: charge of £0.5m) was
recorded in operating profit and £0.8m (2018: £4.8m) was paid during the
period. At the end of the period, there was £nil outstanding (2018: £1.2m).
Flexy Corporation Limited
On 9 July 2019 the Group acquired 100% of the shares of Flexy Corporation
Limited ('Flexy'), an unlisted company incorporated in the United Kingdom, in
exchange for cash. Additional consideration may be payable to the vendors of
Flexy subject to achievement of future performance conditions. Flexy is an
innovative, data-driven analysis platform which uses psychometrics, machine
learning, and nudge theory to unlock local talent. The efficiency gained
through the utilisation of technology combined with the Group's deep staffing
experience will augment the existing portfolio and service offering to
customers and candidates.
Assets acquired and liabilities assumed
The fair values of identifiable assets and liabilities of Global Group as at
the date of acquisition were:
Acquired book value Fair value recognised on acquisition
£ m
£ m
Software 0.2 3.2
Trade, other receivables and cash 0.1 0.1
0.3 3.3
Trade and other payables (0.2) (0.2)
Deferred tax liabilities - (0.5)
(0.2) (0.7)
Total identifiable net assets at fair value 0.1 2.6
Goodwill arising on acquisition 0.3
Purchase consideration 2.9
The majority of the purchase consideration has been allocated against the
software developed by Flexy as that was the main driver for the acquisition.
The remaining goodwill of £0.3m comprises the value of the employees and
their technical skills for driving future development of the platform.
Goodwill is allocated wholly to the Regional Specialist Staffing segment and
included in the Online Platform cash generating unit for impairment testing.
The deferred tax liability arises from the tax effect of temporary timing
differences relating to the fair value of the software acquired.
Purchase consideration £ m
Cash consideration 2.9
Total consideration 2.9
Costs amounting to £0.1m relating to the acquisition have been recognised and
recorded in administrative expenses.
Earnout consideration
As part of the purchase agreement with the previous owners of Flexy, an
earnout consideration has been agreed. There will be additional payments due,
in cash, to the previous owners of Flexy between January 2020 and December
2025 depending on various trading targets being achieved and the continued
employment of certain individuals. This consideration is being accrued through
the profit and loss account over the earnout period, in line with our latest
expectation of the timing of when the targets will be achieved. No charge has
been recognised in the current year.
Significant unobservable valuation inputs are provided below:
From the date of acquisition, Flexy has contributed £0.2m of revenue and a
loss before tax of £0.2m from continuing operations of the Group. If the
combination had taken place at the beginning of the year, Group revenue from
continuing operations would have been £0.5m and the profit before tax from
continuing operations would have been £0.3m.
9 Additional cash flow information
5 January 2019 Cash flow Interest charged Interest paid Change in short term borrowings Foreign exchange 3 January 2020
IFRS 16 adoption
£ m £ m £ m £ m £ m £ m £ m £ m
Cash and short-term deposits 117.1 - 16.4 (0.7) (0.2) 6.7 (7.0) 132.3
Bank overdraft (39.9) - - - - 0.9 - (39.0)
Revolving credit (148.5) - (0.9) (6.5) 6.5 (16.8) 0.9 (165.3)
Hire purchase (0.4) - - - - 0.1 - (0.3)
Lease liabilities - (44.5) - (1.3) 1.3 12.0 0.8 (31.7)
Lease debtors - 10.4 - 0.3 (0.3) (2.9) (0.2) 7.3
Net debt (71.7) (34.1) 15.5 (8.2) 7.3 - (5.5) (96.7)
10 Leases
Property, plant and equipment comprise owned and leased assets, including
right-of-use assets which have been created under IFRS 16 - Leases.
Information about these assets and the related lease liabilities are presented
below.
Property Vehicles Total
£ m £ m £ m
Net carrying value at 5 January 2019 39.8 1.4 41.2
Additions in the period 4.3 0.4 4.7
Depreciation charge in the period (8.5) (0.5) (9.0)
Disposals (net) (11.0) (0.3) (11.3)
Foreign exchange (net) (0.2) - (0.2)
Net carrying value at 3 January 2020 24.4 1.0 25.4
£10.4m of the disposals in the table above relate to the de-recognition, on
adoption, of lease assets of various Group properties which have been sub-let
on similar terms for the remaining period of the lease. Such disposals have
been recognised as lease receivables.
Lease liability maturity analysis
Less than 1 year 1 to 5 years More than Total
5 years
3 January 2020 £m £m £m £m
Lease liabilities 10.6 15.7 5.4 31.7
11 POST BALANCE SHEET EVENTS COVID -19
In line with the FRC's guidance that COVID-19 should be treated as a
non-adjusting post balance sheet event given our year-end and the development
of the pandemic after that date, we have performed a re-assessment (but not
adjustment) the carrying value of the reported assets and liabilities.
Goodwill and other intangibles and investments
The Group has goodwill and intangible assets which if downside scenarios were
applied may result in additional impairments. However, although there is
inherent uncertainty of the future trading as a result of the impact of
COVID-19, if such a downturn is temporary, future cash flow models would not
include the major impacted year of 2020. At this stage it would not be
appropriate to model any additional impairment until there is a clearer
picture of longer-term trading. The Company holds investments in its
subsidiaries and as with goodwill and intangibles at this stage it would not
be appropriate to model impairments to these assets.
Financial assets
The Group's other financial assets are not material and relate to rent
deposits and marketable investments held in trust for US employees workers'
compensation, these are likely to have had a short-term devaluation.
Right of use asset
Right of use assets largely relate to property leases which at present and in
downside planned scenarios, the Group expect continuing to use and therefore
would not consider these impaired. In an extreme down-turn, which we do not
foresee, we may consider plans to exit some property commitments
Deferred tax assets
Deferred tax assets largely relate to brought forward trading losses in the US
that we anticipate can be utilised against future trading profits. In the
directors' downside scenarios, the timing of the utilisation of these losses
would now be longer, though we would still anticipate that they would be
utilised.
Trade receivables and their recoverability
The Group supply to a wide range of customers and sectors, at the date of
these financial statements there had been no specific issues identified in the
recoverability of amounts due from the Group's customers. Furthermore, the
Group holds a level of credit insurance. There is an increased risk associated
with the trading performance of our customers and their ability to meet their
obligations. If the Group's estimated credit loss provision were to double
(for illustrative purposes), the provision would increase by £0.7m.
Short term borrowing
Short term borrowings are derived from forecast repayments in net debt during
the 12 months following the period end. The borrowings are committed
facilities that can be drawn and repaid to support working capital
requirements. In downside scenario models these would be classified as long
term debt.
12 PRIOR YEAR ADJUSTMENTS
As discussed in note 1.III, the Group adopted new standards in the period, the
most significant of which were IFRS 9 'Financial Instruments', IFRS 15
'Revenue from Contracts with Customers' and IFRS 16 'Leases'. The adoption of
IFRS 9 and IFRS 15 did not have a material effect on prior years and no
comparatives have been re-presented. IFRS 16 has been adopted using the
modified retrospective basis and therefore comparative periods were not
required to be restated.
As part of a review of accounting policies and procedures the Group discovered
certain anomalies and errors that have been corrected via adjustment to prior
periods. These adjustments resulted in presentational changes in the income
statement and balance sheet and did not result in a change to reported profits
in the prior period and therefore they have not had an impact on reported
basic or diluted earnings per share. In relation to the income statement,
there has been a prior year adjustment to increase both revenue and cost of
sales by £47.3m, as the commission on a customer contract was previously
accounted for net, as 'agent'. The Group believe it should have been accounted
for gross, as 'principal', under IAS 18 'Revenue', being the relevant standard
at the time.
In relation to the balance sheet, certain adjustments have been made to prior
year. Some of these adjustments affected the opening reserves in 2018
financial year so a third balance sheet is presented to reflect the revised
opening position. As noted above, none of these adjustments had a material
impact on the profit reported in 2018. The adjustments are summarised below:
· Offsetting bank account balances - The Group had previously shown
positive and negative balance balances on a net basis, as there is a formal
offsetting arrangement held with the banks. As the Group did not directly
intend to either settle on a 'net basis', or to 'realise the asset and settle
the liability simultaneously', the IAS 32 offsetting rules were not available.
This has led to an increase in cash of £39.9m in the prior year, and a
corresponding increase in borrowings.
· Customer unclaimed payments - an adjustment of £4.2m was made to
increase other creditors and a reduction to retained earnings in the 2018
opening balance sheet in relation to amounts previously released to the income
statement, as there was an expectation that these would not be requested for
repayment, following attempts to return these payments. These are now being
held until the financial liability is deemed to be cancelled, discharged or
expires. As the level of release and increase in unclaimed payments were
similar in both 2017 and 2018, the revised treatment had no material impact on
prior reported profits in those periods.
· Implementation costs - the Group recognised an asset of £1.2m in
the 2018 opening balance sheet in relation to implementation cost previously
expensed as well as a related deferred tax action provision of £0.3m. This
resulted in an increase in equity of £0.9m. As the relevant capitalisation
criteria were met, the Group has adopted this revised treatment. The level of
expense and amortisation is comparable under the past and revised treatment,
so there is no material impact on prior reported profits.
· Customer contract 'gross ups' adjustments - various customer
contract related balances have been adjustments to present them 'gross' rather
than 'net'. This has resulted in an increase to 2018 trade receivables by
£1.4m (2017: £2.3m), contract balances by £1.3m (2017: £4.4m), other
receivables by £0.9m (2017: £nil) and prepayments by £0.8m (2017: £nil);
with corresponding increases in trade payables of £0.4m (2017: decrease
£5.7m), accruals of £2.0m (2017: £12.4) and other payables of £2.0m (2017:
£nil).
Alternative Performance Measures
Certain discussions and analyses set out in this Annual Report and Accounts
include measures which are not defined by generally accepted accounting
principles such as IFRS. We believe this information, along with comparable
IFRS measurements, is useful to investors because it provides a basis for
measuring our operating performance on a comparable basis. Our management uses
these financial measures, along with the most directly comparable IFRS
financial measures, in evaluating our operating performance and value
creation. Non-IFRS financial measures should not be considered in isolation
from, or as a substitute for, financial information presented in compliance
with IFRS. Non-IFRS financial measures as reported by us may not be comparable
with similarly titled amounts reported by other companies.
Adjusted EBITDA
Definition: The Group calculates adjusted EBITDA as operating profit before
interest, tax, depreciation and amortisation and excludes IFRS 16 adjustments,
separately disclosed items and share-based payments.
Closest equivalent IFRS measure: Operating profit.
Rationale for adjustment: The Directors believe that adjusted EBITDA is the
most appropriate approach for ascertaining the underlying trading performance
and trends as it reflects the measures used internally by senior management
for all discussions of performance, including Directors' remuneration, and
also reflects the starting profit measure used when calculating the Group's
banking covenants. All discussions within the Group on segmental and
individual brand performance refer to adjusted EBITDA.
Following the adoption of IFRS 16 in 2019 the Group will move to Adjusted
Operating Profit as its Alternative Profit Measure in 2020, to include
depreciation and amortisation of assets but excluding amortisation of acquired
intangibles, and this is included in the table below for reference.
Reconciliation of adjusted EBITDA to operating profit:
2019 2018
£m £m
Segment adjusted EBITDA 49.5 52.9
Corporate Costs (2.8) (3.1)
Adjusted EBITDA 46.7 49.8
Net IFRS 16 effect (0.3) -
Amortisation of software (7.0) (4.9)
Depreciation of property, plant and equipment (3.2) (3.2)
Loss on disposal (0.2) (0.1)
Adjusted operating profit 36.0 41.4
Amortisation of brand value and customer relationships (10.2) (4.2)
Separately disclosed items (4.9) (5.7)
Impairment of intangible assets (7.0) (8.6)
Share-based payments - (0.4)
Operating profit 13.9 22.5
Separately disclosed items are costs or income that have been recognised in
the income statement which the Directors believe, due to their nature or size,
should be disclosed separately to give a more comparable view of the
year-on-year underlying financial performance.
The impairment charge due to its size is disclosed separately to give a more
comparable view of the year-on-year underlying financial performance.
Share-based payments - in September 2015 the Company granted share awards to
two senior Directors to vest following the publication of the audited
financial results for the year ended 31 December 2017. One of the Directors
left during 2016 and the share award relating to that Director has been
cancelled. The remaining shares lapsed in 2018 as the vesting conditions were
not met.
These are shown separately in order to bring this to the attention of the
reader to highlight that this is a scheme which is one-off in nature and not
part of the ongoing remuneration structure of senior executives.
The separately disclosed items are:
52 weeks 53 weeks
3 January 2020 4 January 2019
£ m £ m
Group transformation costs ((1)) 3.8 -
Group de-merger ((2)) 0.7 -
Adjustments to contingent consideration ((3)) (0.3) 0.5
Legal costs ((4)) 0.7 3.2
US Businesses restructuring and integration ((5)) - 2.0
Total included in Operating profit 2.6 5.7
Finance expense - separately disclosed ((6)) 0.9 -
1) In 2019 the Group commenced a transformation programme looking at all
aspects of the business including structure, people, IT and individual
businesses. This process remains ongoing and will generate further costs in
2020. These costs are one-off in nature and have been disclosed in order not
to distort the underlying trading performance of the business
2) The Group de-merged Carlisle Support Services Group in 2019, incurring
costs of £0.7m. These costs are one-off in nature and have been disclosed in
order not to distort the underlying trading performance of the business
3) Contingent consideration payments linked to individuals' continuing
employment in the business generated a £0.3m credit in relation to the
acquisition of Global Group (UK) Ltd (2015: £0.5m). These are of such
significance that they are shown separately so as to not distort the reporting
of the underlying performance of the respective businesses
4) In 2018 the Group had an ongoing litigation matter for which a provision
for settlement and associated legal costs of £3.0m has been made. Following
further legal advice, in 2019 the provision has been reduced to £1.0m The
Group are also considering a settlement in relation to a contract for which a
provision of £2.3m has been made. These are disclosed separately due to their
one-off nature and significance
5) US Business restructuring and integration 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 performance. Following the acquisition of
Bartech at the end of 2015 the Group has gone through a three-year programme
to enable the realisation of cost and revenue synergies and ensure the right
structure of Impellam North America is in place. This includes costs related
to the integration of the Bartech business to Impellam systems, processes and
policies. This programme has concluded at the end of 2018. All other costs
related to restructures within the individual Impellam brands have been
included in the trading results as they are not deemed significant
6) Finance costs previously capitalised have been written off due to the
negotiation of a new Revolving Credit facility during the period.
Spend Under Management (SUM)
Definition: Total amount of client expenditure which our Managed Service
brands managed on behalf of their clients. This equates to revenue earned
where Impellam acts as principal plus gross billings to customers where
Impellam acts as agent.
Closest equivalent IFRS measure: Group Revenue.
Rationale for adjustment: The Group uses this measure as it reflects the total
value of the client spend to the Group, not just the revenue generated.
Continuing adjusted earnings per share (EPS)
Definition: Continuing adjusted profit divided by the weighted average number
of Ordinary shares outstanding during
Closest equivalent IFRS measure: Continuing basic earnings per share.
Rationale for adjustment: The Group uses this measure alongside the basic EPS
calculation as it reflects the underlying trading performance of the business
Reconciliation of Adjusted EPS to Basic EPS:
52 weeks (As restated) 53 weeks
3 January 2020 4 January 2019
£m £m
Continuing profit for the period 4.8 12.9
Separately disclosed items (net of tax) 4.1 6.0
Impairment of goodwill 1.6 8.6
Impairment of other intangible assets 4.4 -
Acquired intangibles amortisation (net of tax) 8.2 3.3
Continuing adjusted profit 23.1 30.8
Weighted average number of shares 48,543,107 50,171,830
Continuing adjusted basic earnings per share 47.6 61.5
Continuing adjusted diluted earnings per share 47.6 61.5
Note to Editors:
Impellam is a leading Global Talent Acquisition and Managed Workforce
Solutions provider supported by talent-focused specialist staffing brands with
deep heritages, vertical sector expertise and loyal candidate networks.
Clients across the world trust us to deliver Managed Services and
talent-focused Specialist Staffing in the UK, North America, Australasia, the
Middle East and Europe. Working with them are 3,000 Impellam people, bringing
a wealth of expertise through our 16 market-leading brands across 112
locations. Every year, we connect carefully chosen candidates with good work
at all levels. They include technology and digital specialists, scientists,
clinical experts, engineers, nurses, doctors, lawyers, teachers,
receptionists, drivers, chefs, administrators, warehouse and call centre
operatives.
Underpinning everything we do is our Virtuoso strategy which recognises it is
our people who make the difference. Virtuosos make and deliver on promises and
grow with their customers through sector, service or international expansion
which ensures there is never a need for a customer or candidate to leave
Impellam. Impellam is the sixth(1) largest Global Talent Acquisition and
Managed Workforce Solutions provider in the world.
For more information about Impellam Group please visit: www.impellam.com
(http://www.impellam.com)
1 By SUM (confirmed by Staffing Industry Analysts). Spend Under
Management (SUM) is the total amount of client expenditure which our Managed
Services brands manage on behalf of their clients. This equates to revenue
earned where Impellam acts as principal plus gross billings to customers where
Impellam acts as agent (2018 published numbers). Management use this measure
as it reflects the total value of the client spend to the Group and not just
the revenue generated
-END-
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