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Impellam Group reveal improved revenue in half year results

Key highlights

&sect Revenue &pound612.3 million (2013: &pound591.7 million)

&sect Gross profit &pound91.0 million (2013: &pound83.8 million)

&sect Increase of 70bps in gross margin to 14.9% (2013: 14.2%)

&sect Permanent placement fees increased by 14.7% and represent 12.8% (2013: 12.0%) of Staffing gross profit

&sect Segment EBITDA from continuing operations of &pound20.3 million (2013: &pound17.3 million)

&sect Operating profit &pound14.8 million (2013: &pound11.8 million)

&sect Conversion of gross profit into operating profit of 16.3% (2013: 14.1%)

&sect Earnings per share of 28.0p (2013: 20.1p)

&sect Interim dividend increased by a quarter to 6.25 pence per share (2013: 5.0 pence per share) payable on 5 September 2014 to all shareholders on the register on 8 August 2014.

&sect Acquisition of Career Teachers during the period for a cash consideration of &pound20.3 million.  Post acquisition operating profit contribution of &pound1.4 million.

Julia Robertson, chief executive officer, commented, "During the period, I am pleased to report that significant steps have been taken against the Group's strategic objectives which I set out at the end of 2013, thus for the first time, we are also reporting financial performance in our core staffing businesses by Specialist Staffing and Managed Services, including the spend we manage on behalf of clients.  I am also happy to report that we have completed the rebranding of our UK Managed Services business, formerly Carlisle Managed Solutions, as Guidant Group.  The Group now has a truly global Managed Services operation across the United Kingdom, North America and Australia and is able to extend services across multiple geographies.  The acquisition of Career Teachers in March 2014 was the first step in strengthening and refining our portfolio of Specialist Staffing businesses into market leading positions and I am pleased to report that the business is delivering in line with the Board's expectations. 

It is with great sadness that I report the passing of our Chairman, Andrew Wilson, in May 2014. Andy was a driving force in the creation of Impellam in 2008 and was a staunch advocate of our new Group strategy. His contribution to the Group has been significant and he is much missed."

Managed Services

Revenue in our Managed Services segment increased by 12.8%** to &pound309.1 million (2013: &pound277.4 million) whilst gross profit also increased by 13.2%** to &pound28.7 million (2013: &pound25.9 million).  Operating profit, before shared costs, was &pound15.2 million (2013: &pound13.0 million).  During the period, we rebranded our core UK operations as Guidant Group and brought the UK and US operations under common management to allow us to deliver a truly global offering to customers who are looking for visibility and control of large-scale workforces and recruitment campaigns.  The period also saw significant progress within our Managed Service operations in Medacs in which we have taken a commanding early position in a rapidly evolving market where we estimate we have a market leading share. Across the portfolio, we manage as an agent, significant volumes of client spend and we are making progress in our key strategic objective of retaining more of this spend through delivery from our specialist brands. 

Specialist Staffing

Revenue in our Specialist Staffing segment increased 2.1%** to &pound298.1 million (2013: &pound295.6 million) whilst gross profit increased by 7.9%** to &pound59.3 million (2013: &pound55.9 million).  Operating profit was &pound18.6 million (2013: &pound18.1 million), before shared costs.  Our Specialist Staffing business was complemented by the acquisition of Career Teachers in Marchand we continue to look to acquire other distinctive brands which will further strengthen the portfolio.  Across the remainder of our Specialist brands revenue growth was held back by the exchange impact of a weaker US dollar and also by the increased penetration of the direct engagement model in the healthcare market where Medacs reports only the margin on temporary assignments with payroll costs met by the NHS directly. 

Traditional network businesses such as Tate andBlue Arrow are seeing significant increases in demand which they are effectively converting, but the impact of this growth has been masked by underperformance in Carbon60, our engineering and technical business in which we have recently changed management and Hewitson Walker where we are re-engineering the business to focus on qualified staff. As the demand for skilled specialist staff increases in line with economic recovery we have invested in an additional 118 productive heads to ensure we take full advantage of market opportunities.

Shared costs are &pound15.4 million (2013: &pound14.7 million) and represent those operating costs that do not predominantly support either Managed Service or Specialist Staffing activities.  As we move forward with the strategy, these costs will be further challenged.

Impellam United Kingdom

Revenue increased 10.5% to &pound411.0 million and gross profit increased by 12.2% to &pound56.9 million.  Market indicators suggest a continued improvement in the outlook for the UK economy and we are seeing increased demand in both the temporary and permanent market, the latter now representing 17.3% (2013: 17.2%) of net fee income.  Operating profit in the segment improved to &pound14.2 million from &pound12.3 million in the prior year,including a contribution of &pound1.4 million from Career Teachers.  A conscious decision has been made to increase consultant headcount against positive market indicators.  As a consequence, productivity has been flat with conversion of 25.0% (2013: 24.3%).  We expect these investments to improve conversion in the second half.

Impellam North America

Revenue decreased 2.3%* to &pound86.0 million and gross profit decreased by 3.4%* to &pound16.9 million.  The adverse weather in North America at the start of the year impacted the business and halted the run of seven quarters of year on year margin growth.  Not only were our branch locations impacted, but many of our client's locations were closed with our associates unable to work.  The weather also impacted momentum in sales activity which has impacted the business.  However, local management are implementing a plan to deliver the changes required to return the business to year on year growth.

Medacs Healthcare Group

Revenue decreased 2.5% to &pound85.5 million.  However, gross profit increased by 16.4% to &pound14.2 million. The business is experiencing improving market conditions with volumes increasing although demand in specific clinical areas continues to be a challenge. As previously reported, buying patterns in the NHS are also changing with shorter lead times and multiple buying frameworks for medical professionals alongside increased competition from new entrants, particularly those offering solutions aimed at enabling the NHS to reduce VAT related costs.  This is evident in the revenue decline in this segment as the NHS is directly responsible for payroll costs under these direct engagement models.

Medacs has taken an early lead in the emerging managed services market, leveraging the Group's capability in this area, and is also reaping the benefit of a growing profile in the "Wellness" market. As a consequence, operatingprofit of the segment increased by nearly 60% to &pound3.3 million (2013: &pound2.1 million) with profit conversion improved to 23.2% in the period from 17.2% in the prior period.

Carlisle Support Services

Revenue decreased 12.0% to &pound32.3 million however gross profit increased by 50.0% to &pound3.0 million.  Following a period of substantial upheaval, the new management team has made considerable progress in stabilising the business, exiting from poor contracts and improving the service delivery in others.  We are also seeing recovery in the Retail sector after a number of years of decline in both demand and pricing.  Accordingly, the business reported a much reduced operating loss of &pound0.7 million in the first half.   

Importantly, we have also negotiated the exit of the onerous contract, the expected losses of which were previously provided for in full to the end of the contract.  An orderly handover of the services is on-going with an agreed termination date at the end of September this year.  As a consequence, the expected future losses have been reduced which has allowed &pound1.3 million of excess provision to be released to the income statement. As the set-up of the provision for the onerous contract was taken as a non-recurring item in the income statement in 2013, the release of provision has also been taken as a non-recurring item.

The outlook for this business continues to improve. However, the progress made with existing contracts and the conversion of contract wins into profitable long term income streams will take time to achieve.  We are confident that the losses have been stemmed.  We continue to evaluate options for this non core business and will update shareholders in due course.

Board Changes

As previously announced, Andrew Burchall will step down from the Board on 31 July 2014.

The Board is also pleased to announce the appointment of two Non-executive directors with immediate effect. 

Michael Laurie (64)was an army officer for 34 years, holding the role of Major General at the Ministry of Defence, before retiring from the forces in 2003 and taking up the role of CEO at the Crimestoppers Trust where he led a period of transformation, significantly improving the organisation's reputation through a number of ground-breaking initiatives, before retiring from the position in 2013.  In early 2014 Mr Laurie became Non-executive Chairman of SUSD Limited, a company whose purpose is to promote sustainable architecture.

Sir Paul Stephenson (60)worked in the police service from 1975 and became a member of the Association of Chief Police Officers in 1994. He was appointed Chief Constable of Lancashire in 2002 and Deputy Commissioner of the Metropolitan Police Service in 2005.  He became a Companion of the Chartered Management Institute in 2008 and was knighted later that year for his services to the country.  He was appointed as Commissioner of the Metropolitan Police service in 2009, where he served for two years before retiring from the service in 2011. Sir Paul Stephenson also served as a Non-executive director of Restore plc between May 2012 and May 2014

Mr Laurie and Sir Paul Stephenson are currently, or have been, directors of the following companies in the last five years:

Mr Laurie

Sir Paul Stephenson

SUSD Ltd.

Sir Paul Stephenson Ltd.

Arta Consulting Ltd.

Restore Plc*

Impact Leadership Solutions

*former director

There are no further disclosures required in accordance with Schedule Two paragraph (g) of the AIM Rules in respect of these appointments.

Cash flow, net debt and net assets:

The Group used &pound7.7 million of cash in operations in the first twenty-six weeks of the year (2013: &pound20.2 million), a principle factor in the improvement being the timing of quarter end VAT payments, with &pound7.5 million paid immediately after the period-end in 2014.  Our main measure of working capital management, days sales outstanding (DSO), continue to be well controlled across the Group.  DSO for the Group was 41.0 at 27 June 2014 compared to 37.2 at 27 December 2013 and 39.8 days at 28 June 2013. We are seeing increasing challenges in cash collection with NHS clients as Trusts reduce headcount or outsource their back office processes.

Net debt increased by &pound33.0 million to &pound25.0 million as at 27 June 2014 (27 December 2013: net cash &pound8.0 million, 28 June 2013: net debt &pound24.3 million).  In the first half of 2014 the Group has utilised &pound2.5 million on capital expenditure (2013: &pound2.7 million), spent &pound20.3 million, net, on the acquisition of Career Teachers (2013: &pound1.0 million on a small in-fill acquisition in Singapore), and paid interest of &pound0.5 million (2013: &pound0.6 million). With continuing profitability and the utilisation of historic tax losses, the Group paid &pound1.3 million in Corporation tax in the period (2013: &pound1.9 million). During the first half of 2013 the Group also paid &pound15.4 million in special dividend.

In addition, the Group has outstanding letters of credit drawn against its US borrowing facilities amounting to $7.0 million (27 December 2013: $7.0 million).  

At 27 June 2014, the Group had net assets of &pound123.7 million (27 December 2013: &pound112.1 million).

Financial results for the twenty-six weeks to 27 June 2014

The table below sets out the results for the Group by segment for the first half of 2014.

Group results

Revenue

Gross profit

Operating profit

&pound'million

2014

2013

% change

2014

2013

% change

2014

2013

Impellam United Kingdom

411.0

372.1

10.5

56.9

50.7

12.2

14.2

12.3

Impellam North America

86.0

95.2

(2.3)*

16.9

18.9

(3.4)*

0.9

2.0

Medacs Healthcare Group

85.5

87.7

(2.5)

14.2

12.2

16.4

3.3

2.1

Staffing Services

582.5

555.0

5.0

88.0

81.8

7.6

18.4

16.4

Carlisle Support Services

32.3

36.7

(12.0)

3.0

2.0

50.0

(0.7)

(2.0)

Intra-group revenue

(2.5)

-

-

-

-

-

612.3

591.7

3.5

91.0

83.8

8.6

17.7

14.4

Depreciation and amortisation

 

 

 

2.6

2.9

EBITDA

 

 

 

20.3

17.3

Corporate costs

 

 

 

(2.9)

(2.6)

Operating profit

 

 

 

14.8

11.8

 

 

 

 

 

* % change measured in local currency

In addition the table below sets out the results of the United Kingdom, North America and Medacs staffing services by its strategically identified service types:

Revenue

Gross profit

Operating profit

&pound'million

2014

2013

% change

2014

2013

% change

2014

2013

Spend under management

555.9

558.1

4.9**

 

 

Group Supply

70.4

61.0

19.5**

 

 

Managed Services

309.1

277.4

12.8**

28.7

25.9

13.2**

15.2

13.0

Specialist Staffing

298.1

295.6

2.1**

59.3

55.9

7.9**

18.6

18.1

Inter-segment revenues

(27.2)

(18.0)

-

-

-

-

Staffing Services

580.0

555.0

4.5

88.0

81.8

7.6

33.8

31.1

Shared costs

 

 

 

(15.4)

(14.7)

 

 

 

18.4

16.4

Carlisle Support Services

32.3

36.7

(12.0)

3.0

2.0

50.0

(0.7)

(2.0)

Corporate costs

 

 

 

(2.9)

(2.6)

Operating profit

 

 

 

14.8

11.8

 

 

 

 

 

** % change measured at constant currencyrates

Consolidated income statement

For the twenty-six weeks ended 27 June 2014

 

2014

2013

Notes

&poundm

           &poundm

Continuing operations

 

Revenue

2

612.3

591.7

Cost of sales

(521.3)

(507.9)

 

Gross profit

91.0

83.8

Administrative expenses*

(76.2)

(72.0)

 

Operating profit

2

14.8

11.8

Finance expense

(0.8)

(0.7)

 

Profit before taxation

14.0

11.1

Taxation

4

(1.7)

(2.3)

 

Profit for the period attributable to owners of the parent Company

12.3

8.8

 

Earnings per share for equity holders of the parent Company

 

Basic and diluted

5

28.0

20.1p

 

* Refer to note 3 for details of the non-recurring items in the year which net to zero.

Consolidated statement of comprehensive income

For the twenty-six weeks ended 27 June 2014

 

2014

2013

 

                &poundm

&poundm

Profit for the period

12.3

8.8

Other comprehensive income:

 

Items that may be subsequently reclassified into income:

 

Currency translation differences (net of tax)

(0.7)

0.7

 

Total comprehensive income for the period attributable to owners of the parent Company

11.6

9.5

 

Consolidated balance sheet

As at 27 June 2014

 

27 June 2014

27 December 2013

 

&poundm

&poundm

Non-current assets

 

Property, plant and equipment

4.8

4.3

Goodwill

56.7

46.8

Other intangible assets

58.9

47.2

Deferred tax assets

3.4

2.9

Financial assets

1.8

1.7

 

 

125.6

102.9

 

Current assets

 

Trade and other receivables

258.7

225.3

Cash and short-term deposits

32.3

35.1

 

 

291.0

260.4

 

Total assets

416.6

363.3

 

 

 

 

 

Current liabilities

 

Trade and other payables

205.8

192.9

Taxation liabilities

2.5

-

Short-term borrowings

57.3

27.1

Provisions

11.4

7.0

 

 

277.0

227.0

 

Net current assets

14.0

33.4

 

Non-current liabilities

 

Other payables

1.7

-

Provisions

3.3

15.3

Deferred taxation liabilities

10.9

8.9

 

 

15.9

24.2

 

Total liabilities

292.9

251.2

 

Net assets

123.7

112.1

 

Equity

 

Issued share capital

0.4

0.4

Share premium account

15.6

15.6

 

 

16.0

16.0

Other reserves

91.6

92.3

Retained earnings

16.1

3.8

 

Total equity

123.7

112.1

 

 

Consolidated cash flow statement

For the twenty-six weeks ended 27 June 2014

2014

2013

                  &poundm

             &poundm

Cash flows from operating activities

 

Profit before taxation

14.0

11.1

Adjustments for:

 

      Net interest charge

0.8

0.7

      Depreciation and amortisation

2.6

2.9

17.4

14.7

Increase in trade and other receivables

(31.9)

(11.8)

Increase / (decrease) in trade and other payables

14.5

(22.2)

Decrease in provisions

(7.7)

(0.9)

Cash utilised by operations

(7.7)

(20.2)

Taxation paid

(1.3)

(1.9)

 

Net cash utilised by operating activities

(9.0)

(22.1)

 

Cash flows from investing activities

 

Acquisition of subsidiary, net of cash acquired

(20.3)

(1.0)

Purchase of property, plant and equipment

(1.4)

(1.0)

Purchase of intangible assets

(1.1)

(1.7)

Net movement in other financial assets

(0.1)

0.1

 

Net cash utilised on investing activities

(22.9)

(3.6)

 

Cash flows from financing activities

 

Issue of ordinary share capital

-

0.1

Net movement in short-term borrowings

30.2

21.3

Dividend paid

-

(15.4)

Finance expense paid

(0.5)

(0.6)

 

Net cash inflow from financing activities

29.7

5.4

 

Net decrease in cash and equivalents

(2.2)

(20.3)

Opening cash and cash equivalents

35.1

37.8

Foreign exchange loss on cash and cash equivalents

(0.6)

0.5

 

Closing cash and cash equivalents

32.3

18.0

 

 

Consolidated statement of changes in equity

 

For the twenty-six weeks ended 27 June 2014

Total share capital and share premium

Other reserves

Retained earnings

Total equity

&pound m

&pound m

&pound m

&pound m

 27 December 2013

16.0

92.3

3.8

112.1

Other comprehensive income

-

(0.7)

-

(0.7)

Profit for the period

-

-

12.3

12.3

27 June 2014

16.0

91.6

16.1

123.7

 

 

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