The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (EU) No. 596/2014

8 April 2021

Impellam Group plc

("Impellam" or the "Company")

FINAL RESULTS FOR THE YEAR ENDED 1 January 2021
 

Impellam (AIM: IPEL) announces its audited final results for the 52 weeks ended 1 January 2021.

A ROBUST PERFORMANCE IN THE FACE OF GLOBAL CHALLENGES

(1) 2019 financial statements restated due to reallocation of separately disclosed items within the comparative results (see note 2)

(2) Adjusted operating profit before amortisation of acquired intangible assets and impairment (see note 2)

(3) Calculated as adjusted operating profit before amortisation of acquired intangible assets and impairment / Gross profit

(4) Continuing Basic EPS before amortisation of acquired intangible assets and impairment (see note 5)

(5) % change measured at constant exchange rates

(6) Net debt pre IFRS 16 is used as the basis for banking covenant calculations

Key operational highlights

A robust performance in the face of substantial global challenges to the business from the Covid-19 pandemic, with Group revenue down 11.3% at £2.0bn (2019: £2.3bn) and adjusted operating profit¹ reduced to £18.2m (2019: £31.1m after including separately disclosed items). Significant progress against strategy delivered in the period to enable our Virtuosos, transform our portfolio and improve our resilience, ready for when we emerge from the pandemic.

OPERATIONAL

·      A swift and decisive response to the global pandemic, keeping our people safe, moving to home working overnight and ensuring uninterrupted service for customers and candidates.

·      Accelerating our strategy through Covid-19 and re-organising our business to ensure we were well-placed to adapt with speed and agility to volatile and uncertain markets.

·      Administered the UK Government's Job Retention Scheme, supporting the payment of more than 5,000 furloughed temporary workers to ensure their continuity of income. In addition, 800 Impellam colleagues were furloughed during the year to protect jobs for the long term.

FINANCIAL

·      Gross profit decline of 16.8%, primarily in Q2 during extensive global lockdowns. The UK was hit hardest with gross profit down 21.5% whilst APAC and North America showed more resilience, falling by 16.9% and 4.5% respectively (on a constant exchange rate basis).

·      Global Managed Services, representing nearly a third of the Group's gross profit, withstood the market challenges better than other segments, with gross profit declining by 8.6% (on a constant exchange rate basis).

·      Temporary recruitment, which represents 91.4% of gross profit, decreased by 13.2%. Lockdowns had a significant impact on Permanent recruitment, which was also slower to recover when restrictions eased, leading to a decline of 42.4%.

·      A relentless focus on costs included headcount reductions, salary reductions, furloughing of staff, support from government schemes and the curtailment of discretionary spend, resulting in total savings of £33.1m in the year.

·      The benefits of Q4 2019 headcount reductions flowed through the year, with a further 500 headcount reduction across 2020.

·      A solid result despite adverse and challenging conditions globally with adjusted operating profit¹ of £18.2m (2019: £31.1m).

·      Non-cash impairment charges on acquired goodwill and intangibles of £22.2m, reflecting the impact of Covid-19, leading to an operating loss of £15.0m (2019: £13.9m profit).

·      Net debt was reduced by £72.5m to £26.3m (2019: £98.8m). £48.0m of the reduction comprised of deferred UK VAT payments and US federal tax payments. Pre- IFRS 16 net debt of £4.1m (2019: £72.3m) brought the covenant leverage ratio to less than 1x (2019: 1.74x).

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.

Financial results for the 52 weeks to 1 January 2021

The table below sets out the results for the Group by segment for 2020.

1.     % change measured at constant exchange rates.

2.     Before amortisation of acquired intangibles and impairment

Enquiries:  For further information please contact:

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014

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 2,500 Impellam people, bringing a wealth of expertise through our 14 market-leading brands across 76 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 seventh¹ largest Global Talent Acquisition and Managed Workforce Solutions provider in the world.

For more information about Impellam Group please visit: 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 (2019 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

Chairman's Comments on the Results

We entered 2020 in a strong position following the moves we made in 2019, however, the world changed very quickly during the first quarter. The pandemic created uncertain market conditions, restrictions on our lives and corporate activities, and caused illness and bereavement amongst our customers, candidates and colleagues. The response of our people was exemplary, adapting to work from home almost overnight to deliver an uninterrupted service to our customers and candidates.

On behalf of the Board, I would like to thank our shareholders for their continued support and our people for their hard work and contribution during this challenging time. Julia and her team reacted decisively to secure the business, control costs and manage cash and, at the same time, continued to focus on our transformation to a streamlined, integrated business to ensure we emerge from the pandemic a stronger, leaner, and more resilient organisation.

We saw one change to the Impellam Board in 2020. Tim Briant joined the Group on 1 October 2019 and was appointed to the Board on 3 February 2020 as Group Chief Financial Officer.

Our investment in people and technology proved an essential element in our response to new ways of working and collaborating during the pandemic and we will continue to enhance our IT infrastructure, systems and digital capabilities to ensure we are well prepared for the opportunities the year ahead will bring.

Lord Ashcroft KCMG PC

Chairman

Group Chief Executive Officer's Review

OPERATING REVIEW

The impact of the Covid-19 pandemic on our business was dramatic. It impacted demand for our services - both positively and negatively - changed the way we communicated with clients, candidates and colleagues and challenged our thinking and the way we operate. Against this backdrop, we delivered robust financial results, restructured our business in line with our strategy and streamlined our organisation. I am immensely proud of what we have achieved and the resilience, perseverance, creativity and commitment of all the Impellam people who made it happen.

The health and wellbeing of our colleagues and the talented people we find work for across the world has been front of mind throughout the year. Sadly, eight of our clinicians lost their lives to Covid-19 during 2020. A stark reminder of the importance of the work we do supporting the national efforts of the communities we serve across the world. The impact of Covid-19 was felt across all our regions and markets but particularly in the UK, our largest region by revenue and gross margin, where catering, hospitality, education and aviation markets were all hard hit. Our healthcare businesses in the UK, Republic of Ireland and Australia were incredibly busy but suffered from the cancellation of elective surgery in all regions and the shortages of doctors and nurses. Many succumbed to the virus or had to self-isolate and PPE was in short supply. In Australia, these conditions were exacerbated by border closures, meaning that our doctors were not able to travel to undertake the work needed. Our North American businesses showed more resilience as they were not materially exposed to the most affected end markets.

Conversely, the pandemic created work for many of our people across the world. Along with our healthcare professionals who were, and still are, at the epicentre of the crisis, Impellam people have been engaged in the national efforts in all three of our main regions. In the UK, this work has included the construction of the Nightingale Hospitals, supporting the Ambulance Services, providing clinical and non-clinical staff for testing and vaccination programmes. Throughout the year our life sciences business, SRG, has been centre stage working closely with its pharmaceutical clients and with the development of mobile testing centres. In North America, Corestaff provided the call centre operatives needed to mobilise a crisis management hotline and Bartech played a key role in enabling clients to produce masks and to deliver mass temperature checking programmes.

As we accelerated our transformation into a closely integrated business we benefitted from the collaborative culture we have nurtured and were able to redeploy colleagues and temporary workers from hard-hit sectors such as education, catering and hospitality into growth markets including life sciences and healthcare. Our Global Managed Services businesses worked closely with our specialist staffing brands to ensure that Impellam candidates fulfilled our customers' needs and this contributed £12.6m of Group Fill gross profit (2019: £12.6m). We also formed cross-Group sales and delivery collaborations, winning 11 new managed service programmes and delivering outstanding results for customers. This was the key to maintaining 98% of our top 50 customers. 2020 was certainly a year where everything that is wonderful about the Impellam culture came together to deliver the exceptional service that our customers and candidates expect.

We moved to a remote working model in the third week of March 2020 and like most organisations, we remained in that formation for most of the year. I remain thankful and amazed in equal measure that the transition was so smooth and our investment in IT came into its own. In Q4 2019 we began a headcount and general cost reduction programme and took the decision in Q1 2020 to hold headcount flat, even before the Covid storm clouds gathered. That decision served us well and protected our performance in Q1 2020, giving us a good runway into further cost base management in Q2 and beyond. We made many difficult decisions during the year which meant that 800 colleagues were on full or part furlough at some point during the year, a large number, including the Board and the senior leadership teams, took pay reductions, others agreed to short time working arrangements but sadly we said goodbye to 500 colleagues. Everyone played their part in doing what they could to mitigate the decline in gross profit in Q2 and Q3 2020 and I am very grateful to them for their good humour and commitment to Impellam.

FINANCIAL PERFORMANCE

I am extremely proud of our financial results in this extraordinary year. From a significant decline in sales during Q2, revenue recovered throughout the rest of the year to £2.0bn, ending 11.3% down on 2019 with gross profit at £228.1m, down by 16.7%, each on a constant exchange rate basis. Despite cost mitigation of some £33.1m, adjusted operating profit¹ at £18.2m fell 40.3% (on a constant exchange rate basis) compared to 2019, an improvement from H1 2020 which showed a decline of 54.1%. There were no separately disclosed items in 2020 and the 2019 items of £4.9m have been included within the 2019 adjusted operating profit¹.

Our closing headcount on 31 December was 2,491, 16.8% lower than the previous year. During Q2 2020, the Board and senior leaders across the Group took a 20% pay reduction and many colleagues reduced their working hours. In addition, 800 colleagues were furloughed for varying periods of time according to market dynamics. The combination of all these management actions led to a year-on-year reduction of salary and related costs of £21.9m.

Other areas of discretionary spend reduced significantly. These included travel, entertainment, accommodation and candidate attraction. We do not anticipate these returning to pre-Covid levels as virtual working becomes part of our new better way of being. Our cash and net debt performance were outstanding and my heartfelt thanks must go to our tireless finance community, credit controllers and sales ledger staff across all our operations for the phenomenal job they did to make sure we collected our cash when all around were attempting to preserve it. We are also grateful for the support received from governments across our regions, which included the Job Retention Scheme, rates relief, retail grants and tax credits that benefitted adjusted operating profit¹ by £7.4m and a cash benefit of £48.0m.

STRATEGIC REVIEW

Our strategic focus since 2018 has been the creation of a collaborative, high value, integrated business, where global managed services work in synchrony with our key talent verticals to create the future of good work. The global pandemic shone a clear light on where we need to focus so we took the bold decision in April 2020 to accelerate the delivery of our strategy.

We simplified our business structure, reduced our management layers, and gave our Virtuosos a louder voice and greater span of control, all with the single purpose of creating a fighting fit Impellam ready for when we emerge from this crisis. During 2020, we integrated our Managed Services businesses under single leadership whilst retaining our brand specialisms, Guidant Global and Comensura. This integration has delivered increased collaboration in the development of new services, technology, marketing, people services and best practice. In 2021 we will launch our newly formed Customer Office to formalise the coordination of key strategic accounts to encourage innovation, expand our service offering and drive Group Fill², ensuring our customers never have a reason to leave Impellam.

We also created a regional focus and appointed CEO s in our major territories (UK, North America and Asia Pacific) to bring us closer to our customers by reducing management hierarchies, speeding up decision-making and encouraging regional innovation. Our regional CEOs have specific responsibility for optimising and growing our specialist staffing businesses, working closely with Global Managed Services to increase Group Fill and developing regional shared services functions to create efficient and effective back office services, freeing up our Virtuosos to spend more time with customers and candidates.

1. ENABLING OUR VIRTUOSOS

2020 was an extraordinary year and the year when our Virtuoso strategy came into its own. Quite simply, we could not have achieved what we achieved without the Virtuoso behaviours of Impellam colleagues who not only delivered 'business as usual' from their homes, but also created innovative solutions for our customers and candidates and worked tirelessly on the transformation of our business.

2. TRANSFORMING OUR PORTFOLIO

2020 was a year of transformation. By early April, we had settled into the new rhythm of working from home with new meeting and communication cadences and ways of working. We had early sight of the impact of the pandemic on our customers and, where this caused reductions in work, we assessed the support available to our Impellam colleagues and our temporary workers and put it in place. In addition, we administered and supported 5,000 temporary workers with the Job Retention Scheme made available by the UK Government and absorbed the costs and administrative burden, taking the view it was the right thing to do.

We then had a critical decision to make. Should we focus our efforts on riding out the storm, or should we push on with our transformation and accelerate the delivery of our strategy?

We chose to look forward and with a clear goal of transforming to a fighting fit virtuoso organisation, we set about re-organising our business into a regional structure where decisions are made quickly and closer to the customer. In addition, we integrated our Global Managed Services businesses under single leadership. With this new structure, investment decisions were clearer and more transparent.

We continued to carefully invest in our high growth regions - North America and Asia Pacific - and in our chosen markets - global managed services and high value talent verticals.

Specifically, we shone a light onto our STEM businesses, investing in UK leadership to create a compelling STEM offering, enabling cross-sell and collaboration and sharing best practice. We brought our portfolio of technology businesses together under a single brand, Lorien, both to give our customers access to scalable technology solutions and to provide more opportunity to colleagues and candidates.

We strengthened our capability in North America, Asia Pacific and the Republic of Ireland by investing in talented regional leadership teams and scalable regional shared services. One early outcome of this regional investment and flattening of structures is that we launched Flexy in Australia. Flexy is our digital employment platform which provides just-in-time staffing solutions to our customers, transforming candidate experience in the temporary staffing market.

To enhance our Managed Services offering we created a Managed Services Centre of Excellence to deliver best-in-class Managed Services Programme ('MSP') capabilities including technology to both specialist and full MSP customers. This is a dedicated function operating as an extension to our brands to reduce duplication, drive efficiency and increase service and innovation to customers.

This Centre of Excellence supported the rapid start-up and roll-out of a nationwide Managed Service to support the Department of Health's testing and vaccination programme and would not have been possible without our business transformation.

Finally, and at the core of our strategy, we launched our Customer Office. The Customer Office is a C-suite strategic function and will lead the enhancement and innovation of our customer experiences in collaboration with our brands. It will drive customer-led decisions and will support our Virtuosos with a best practice toolkit to enhance customer delight and retention and make sure that there is never a reason for a customer to leave Impellam.

3. IMPROVING RESILIENCE

Whilst our transformation programme was strategically focused on deliberate moves to build a fighting fit Impellam in the Virtuoso operating model, robust management of our property portfolio was equally important to improve our resilience.

With an overnight shift to virtual working in March, we realised a significant reduction in our property footprint in anticipation that these more flexible working arrangements would continue in the future, albeit in a hybrid way. We completed 39 property exits out of a total property portfolio of 177, delivering annualised savings of £1.92m, 14% of our total property costs. We have a three-year programme of property rationalisation driven by our integrated business model and in anticipation of a long-term shift to virtual and hub working.

We continued to invest in technology to increase efficiency and productivity and to drive collaboration and communication. Our earlier investment in Workplace by Facebook really paid back as it became our key internal communication and engagement platform. We became super users of Teams, Skype, Zoom and Google and encouraged our people to keep their cameras on and smile at each other all year long! We also invested in Condeco, an office management platform to manage office capacity and the health and safety of our colleagues. When we return to our offices once again, we will do so with a system which will simultaneously optimise our property usage and collaboration and give us the comfort of automated track and trace capability to mitigate against the spread of Covid-19.

At the end of 2020 we committed to investment in our core technology systems. This investment will centre on moving our systems to the cloud and will further digitise the way we work using AI, automation and mobile solutions. The focus will be the development of a 'digital core', improving integrity and integration between our transactions with customers and candidates. There will be a common global financial system to support our work in back office transformation, regional middle office bill and pay replacements and upgrades to help us digitise and automate our regional operations. Finally, new, digital front office systems will enable our people to deliver an enhanced experience for customers and candidates and will increase collaboration across the Group.

SEGMENTS

Global Talent Acquisition and Managed Services Workforce Solutions

Our Global Talent Acquisition and Managed Services Workforce Solutions (Global Managed Services) businesses were amongst the most resilient in the Group, notwithstanding the impact of Covid-19 on several of our core markets, including aviation and aerospace, travel, hospitality, oil & gas and manufacturing. Against this backdrop, and supported by positive hiring trends in healthcare, government, life sciences and online retail, revenue was down by just 6.2%, whilst gross profit declined by 8.6% both on a constant exchange rate basis.

During 2020, Impellam unified its managed services brands under single leadership whilst retaining the distinct brand personalities and value propositions of Guidant Global and Comensura. This strategic move maximises collaboration, reduces duplication and contributed to the 10.6% reduction in administration expenses compared to 2019.

Continued investment in and adoption of technology together with a Virtuoso approach to business transformation and agility meant that several new business wins were secured whilst existing relationships were renewed at a record level. Following particularly strong performances from Comensura in the UK and Guidant Global in the US, our Managed Services businesses are very well placed for a strong recovery in 2021.

Global Specialist Staffing

Our Global Specialist Staffing brands in the UK and US faced two major challenges in 2020, Covid-19 and IR35, and consequently, revenue decreased by 19.4% and gross profit by 17.6% on a constant exchange rate basis. The UK Government's decision to pause IR35 came too late to reverse the policies that many of our enterprise customers had made, leading to a significant reduction in the UK of the use of IT contractors during H1 2020. This coincided with the start of the pandemic which had an immediate impact on permanent hiring in both the UK and US. The hiring of IT contractors returned quickly following the end of the initial lockdown phases in both territories and by Q4, business volumes were starting to recover towards pre-pandemic levels.

The UK life sciences business, SRG, was undoubtedly one of the most Covid-19 resilient parts of the Impellam portfolio. SRG delivered growth year-on-year due to the increased demand in Covid-19 related projects, with over 50% of scientific placements made in H2 2020 linked to pandemic related projects, from R&D through to Covid testing projects across both the private and public sector.

We continued to selectively invest in our Global Specialist businesses during 2020 whilst keeping tight control of discretionary spend, reducing administration expenses by 14.1% compared to 2019.

In Q4, recognising the vital role our technology and life sciences businesses play in the future world of work, brought into sharp focus by the impact of the pandemic, we reorganised our STEM business in the UK into one portfolio to ensure continued focus and investment.

In addition, during 2020 we consolidated our technology staffing businesses across the world and rebranded as Lorien. The move to a single global business enables us to provide our customers with the scale, agility and expertise to meet all their technology and telecoms needs anywhere in the world.

Our STEM businesses are well positioned for future growth as we see a consistent increase in demand for developers and software engineers as businesses accelerate their digital transformation programmes coupled with an unprecedented recognition and demand for the work of our scientists.

Regional Specialist Staffing

Our Regional Specialist Staffing brands in the UK and US were amongst those hit hardest by Covid-19 in 2020. Whilst across the globe our white-collar workforces pivoted to working remotely, our light industrial and manufacturing workers were unable to do so and the well-documented decline of the travel, catering and hospitality sectors added to the challenge. This had a significant impact on gross profit, which declined by 25.8% compared with 2019 whereas the business mix and recovery throughout the year meant revenue ended the year only 11.0% down on last year (all on a constant exchange rate basis).

In response to these changing market conditions, as well as providing thousands of people to support vital Covid-19 work, decisive action was taken to reduce the cost base, cutting administration costs by 20.4%. This was achieved through thoughtful strategic management actions to share resources, reduce duplication and increase collaboration as well as headcount reduction and use of the UK Government Job Retention Scheme. The focus on reducing our working capital and overdue debts also improved our cash flow.

In the UK, the uncertainties caused by the pandemic, combined with the potential impact of Brexit, meant that our customers approached future hiring plans with some caution.

In the US, restrictions were lifted more quickly, and businesses reopened and adapted to the new pandemic landscape by mid-year, meaning that our brands returned to pre-pandemic worker numbers by Q4.

During 2020 our Regional Staffing businesses continued to transform, embracing more flexible ways of working. Our teams became accustomed to working virtually and across geographic boundaries enabled by the investment made in technology between 2017 and 2019. This gave us the confidence and operating model to make substantial inroads into reducing our property estate for this portfolio.

Healthcare

The impact of the Covid-19 pandemic was felt most profoundly by our Healthcare business, MGG.

Not only were our colleagues and healthcare professionals caught up in the very epicentre of the battle, but we also had to deal with the significant impact on the financial performance of the business as waves of the virus drove up mortality rates and regional healthcare authorities took action to conserve and preserve mission critical resource. This resulted in the cancellation of elective surgery and non-urgent clinical activity, the closure of international and domestic borders and gave rise to resource planning challenges as our health professionals succumbed to the virus or were forced to isolate. Within a turbulent overall healthcare market, our nursing business saw unprecedented demand and was able to respond heroically, achieving 25% growth over 2019.

Against this backdrop, MGG revenue fell by 5.8% on a constant exchange rate basis and gross profit fell by 9.6%. Much of the decline reflected the closure of borders and the impact on international migration of healthcare professionals whilst the UK business had a strong year.

During 2020, MGG became an integral part of Impellam's integrated business model and from this strategic move came collaboration at its best. The sharing of sales pipelines and collaborative bids has resulted in new wins for multiple brands including MGG. Additionally, recruiters from areas of the business hard hit by the pandemic, were transferred to MGG to support the NHS in managing the impact of Covid-19.

OUTLOOK

Whilst the global fight against the Covid-19 pandemic is still underway across our major regions causing restricted visibility, we are cautiously optimistic about a reasonable recovery in 2021.

Whilst we do not anticipate a return to 2019 performance levels on a full year basis, we are seeing the benefit of the assertive cost management and strategic transformation actions we took in 2020 in our Q1 results to date. We are making selective investments in headcount in our attractive growing markets, particularly STEM and Managed Services and we are also investing in a customer office and a digital core systems upgrade. Costs continue to be well managed and temp gross profits are recovering.

We anticipate further recovery when key markets such as hospitality, catering and aviation re-open at the end of lockdowns, but this will be off-set to some degree by reducing levels of Covid-related revenue.

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

INTRODUCTION

Revenue for the year was down 11.3% (11.3% at constant exchange rates) and gross profit decreased by 16.8% (16.7% at constant exchange rates) reflecting the impact of the Covid-19 pandemic on demand for temporary and permanent staff across our businesses. Q1 2020 started well with trading in line with prior year until the first lockdowns across our regions.

Trading reductions were most severe in the second quarter when restrictions were at their highest level and improved steadily through the second half of the year as these were lifted and businesses adapted to new ways of working. The decline in gross profit was mitigated by a £33.1m (13.6%) reduction in costs through savings from voluntary pay cuts, reduced bonus and commission payments, headcount reductions, property closures and reduced travel and facilities costs. In addition, we received £7.4m of government support through the Job Retention Scheme, Rates deferrals and Retail grants. These savings were offset by restructuring costs of £2m and a £3.6m increase in provisions for bad debt.

Adjusted operating profit¹ reduced by 41.5% to £18.2m due to the impact of Covid-19, with the UK experiencing the most significant declines.

In response to the challenges faced in the year the Group also impaired former acquisition intangibles by £22.2m (2019 £7.0m). This non-cash charge was recognised in the first half of the year. £14.3m was recognised against the Information Technology Cash Generating Unit ('CGU') in the GSS reporting segment. Just under £2.1m was recognised against the Engineering CGU, just under £0.3m against the Online platform CGU and £5.6m on the Education brand value, all of which are in the RSS reporting segment.

As a result of the impact of Covid-19 and the impairment charges, the Group recorded an operating loss in the year of £15.0m (2019: profit £13.9m).

The difference between adjusted operating profit¹ and operating profit is reconciled in note 2 and is principally due to the impairment of intangibles previously discussed, and the amortisation of acquired intangibles.

GOVERNMENT SUPPORT

In the UK, the Group received £5m under the Job Retention Scheme ('JRS') where almost 800 staff were furloughed between April and November. In addition, the Group received rates relief of £1.7m and retail grant income of £0.7m. From a cash flow perspective, the Group was able to defer VAT payments of £36.4m which will be repaid over 11 months from March 2021. In the US, $16m (£11.6m) of Federal Tax was deferred under the CARES initiative and will be repaid in two equal instalments in December 2021 and December 2022 We have also administered the JRS for the temporary staff we provide clients. The net effect of these programmes on our gross profit and cost of sales was not material as these programmes were used to compensate the temporary staff affected. It allowed us to maintain these temporary colleagues on our payroll without charging these to clients and preventing ending of their contracts.

FOREIGN EXCHANGE

Currency movements versus Sterling adversely impacted our reported performance. Over the course of the year to December 2020, the total impact of exchange movements on gross profit and adjusted operating profit¹ were £0.7m adverse and £0.5m adverse, 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 £0.5m per annum and adjusted operating profit¹ by £0.1m per annum. The rate of exchange between the US Dollar and Sterling over the year ended 1 January 2021 averaged US$1.2840 and closed at US$1.3494.

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 US Dollar against Sterling positively affected trading results, the strength of Sterling at the balance sheet date (2020: US$1.3494; 2019: US$1.3093) led to a lower re-translation of cash balances denominated in foreign currencies and resulted in a £1.3m year-on-year increase in net debt.

CAPITAL INVESTMENT

Capital expenditure on tangible and intangible fixed assets in the period was £3.5m (2019: £10.4m), as we restricted our spending in response to the impact of Covid-19. The net repayment of finance leases amounted to £8.3m (2019: £9.2m).

INTEREST AND DEBT

Net cash generated from operations during the period was £94.5m, £46.5m after adjusting for the deferral of UK VAT and US Federal Taxes (2019: £49.5m). Strong underlying cash performance was the result of the continued focus on cash collections, overdue debt reduction and working capital management activities. Excluding the deferral of tax payments, the conversion of adjusted operating profit¹ to net cash generated is 256% (2019: 138%). At the end of 2020, Days Sales Outstanding ('DSO') stood at 37.1 days (2019: 39.4 days).

Finance expenses were lower than the prior year at £5.7m (2019: £9.0m). Lease interest was lower at £0.8m (2019: £1.3m) and interest cost on facilities reduced to £4.6m (2019: £6.5m) as a result of reduced borrowings.

At the balance sheet date net debt was £26.3m. Excluding the adjustments for IFRS 16, net debt was £4.1m compared to £72.3m in 2019, a decrease of £68.2m. The net cash flow from operations was primarily utilised as follows:

• Investment in fixed assets and software development: £3.5m

• Net lease repayment: £8.3m

• Share buybacks: £4.3m

• Net interest paid on borrowings and leases: £5.4m

£3.0m of the share buyback was prior to the suspension of the programme due to Covid-19.

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 which is available to 1 April 2021 and in March 2020 the Group exercised the option to extend £220m of the facility by one year to 1 April 2023. This provides the Group with the flexibility to fund its working capital as well as future potential acquisitions. Rates of interest for the RCF are based on LIBOR plus a margin calculated on the net debt to adjusted EBITDA¹ leverage. The RC F also includes a letter of credit facility which amounted to £3.23m (2019: £3.35m) at the end of 2020.

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 the Group's receivables. At the end of 2020, these amounted to £6.3m (2019: £12.6m). These agreements accrue interest at between 0.65% and 1.75% over LIBOR. A significant priority for the Group remains the 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 EBITDA¹) 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 2020, US$20m 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 £1.0m (2019: £0.9m) represents an effective tax rate of -4.9% (2019: 15.8%). The tax charge is comprised of corporate tax charges arising on the Group's activities in the UK and overseas. The overseas tax charge arises mainly in the US where the highest federal corporate income tax rate is 21% and also includes state taxes which range from 2%-9% on average.

The Group's contribution to the UK Treasury in the period amounted to £212.3m (2019: £288.0m) and consisted of VAT, income tax, national insurance and corporation tax. Of this amount, employer's national insurance, apprenticeship levy, irrecoverable VAT and corporation tax of £24.5m (2019: £50.0m) was a cost to the business.

EARNINGS PER SHARE

Continuing basic earnings per share decreased to (46.2)p (2019: 9.8p) as underlying profit after tax from continuing operations reduced by £26.2m. This decrease was driven by the impact of Covid-19 and the increase in impairment of acquired intangible assets. The weighted average number of shares in 2020 was 46.2m, 2.3m lower than 2019 due to the ongoing share buyback programme.

Continuing adjusted earnings per share decreased to 18.2p (2019: 39.2p) and reflects the underlying performance of the business, excluding 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 continued uncertainties related to the global pandemic, Covid-19, have run downside scenarios representing the potential impact on the trading performance and cash flows of the Group.

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 so if there is any short-term decline in trading, the working capital requirements and net debt would initially reduce, providing a natural hedge against any sudden downturn. In the projections, as business activity increases, working capital requirements and net debt levels would rise, but to levels well within our facility. There would be an initial increase in the Group's operating leverage but manageable against covenant requirements. These scenarios include cost mitigation actions that the Group can implement, such as reduced performance bonus, travel and entertainment, marketing activity, reduced capital expenditure and reductions in share buybacks, and, if required, a short period of reduced working hours.

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 and share buyback, further reductions in non-business critical expenditure as well as the potential to reduce working hours and headcount reductions. Based on the above, the Directors consider it appropriate to continue to adopt the going concern basis in preparing the financial statements.

DIVIDENDS AND SHARE BUYBACK

Following the outbreak of Covid-19, the Board suspended the share buyback programme whilst retaining the authorities to buy back shares on an ad hoc basis if deemed appropriate by the Board. In 2020 a total of 1,397,789, £4.3m of shares, were purchased and cancelled by the Company, of which £3m was purchased prior to the suspension of the programme. In January 2021 the Board announced a reduced share buyback programme, where it will purchase ordinary shares in the Company up to an aggregate market value of £0.5m per calendar month until the next AGM to be held in June 2021.

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, and the transition period ended on 31 December 2020. There is continued uncertainty as to 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 leading to reduced fees. Forward visibility remains limited and the outlook uncertain, but as ever we will monitor activity levels closely.

OUTLOOK

Through 2020 our focus on cost and cash management were key in delivering a robust financial performance against the backdrop of the global pandemic. Although the speed and extent of the economic recovery in our global markets remains uncertain, trading conditions have been improving. With the actions we took in 2020 underpinned by our strategies across our balanced portfolio we are well placed to take advantage of a return to growth.

Tim Briant

Group Chief Financial Officer

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF IMPELLAM GROUP PLC ON THE FINAL RESULTS 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 final results statement of annual results for the period 4 January 2020 to 1 January 2021 which includes key operating highlights, Chairman's statement, Chief executive's statement, Chief Financial Officer's statement, narrative disclosures and the financial results.

Responsibilities of directors and auditor

The directors of the company are responsible for the preparation, presentation and publication of the final results statement of annual results. We are responsible for agreeing to the publication of the final results 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 7 April 2021. Our auditor's report is not modified and contains no emphasis of matter paragraph.

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

Procedures performed to agree to the final results statement of annual results

In order to agree to the publication of the final results statement of annual results of the company we:

·    checked the accuracy of extraction of the financial information in the final results 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.

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 final results 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 final results statement of annual results, for this report, or for the opinions we have formed.

Mark Cardiff (Senior Statutory Auditor)

For and on behalf of BDO LLP, Statutory Auditor

​London​, UK

7 April 2020

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

Financial Statements

Consolidated income statement

For the fifty-two weeks ended 1 January 2021

Consolidated statement of comprehensive income

For the fifty-two weeks ended 1 January 2021

Consolidated balance sheet

As at 1 January 2021