Impellam imperilled

Impellam’s business operates in two areas. The managed services division works on long-term contracts with customers, managing their staffing process from end to end. The specialist staffing business provides workers across a wide range of areas, such as doctors, lawyers and chefs, among others, and caters for permanent, temporary and fixed-price contracts.

The group is training so-called “virtuosos” to drive growth. Its description of these virtuosos is a little vague – they are “people who see possibilities and can tune in to the needs of our customers and candidates” – but essentially they are employees who have undergone training to help them better manage relationships with both customers and clients. Management has now trained 400 employees for these roles and is investing in technologies that can improve their productivity. As part of its plans to focus on managed services and specialist staffing, Impellam is demerging Carlisle, its support services business.

At the recent full-year results, management pointed to growth in the managed services business as evidence of its strategy’s success. However, only the UK, Europe and Australasia managed services divisions experienced growth, and this only accounted for a quarter of group gross profits. Profits at the US managed services business fell, along with both specialised services divisions. Impellam is not paying a dividend for the 12 months starting last July, instead opting for a £12m share buyback.

To give Impellam its due, increased cross-selling as part of its growth plan led to a £2.5m increase in incremental gross profit, but a decline in earnings from specialist staffing, increased IT investment and a range of challenges in the group’s end markets squeezed operating profit to £23m, almost half the prior year’s level.

These challenges include the declining use of agencies in the NHS, falling demand for the group’s medical staff and erosion of profit margins. The group’s operating margin fell in the year, from an already razor-thin 2 per cent to just 1 per cent.

Chief executive Julia Robertson talks of “significant challenges” in the UK’s healthcare, retail and education markets. Indeed, difficulties in education recruitment forced Impellam to take an £8.6m goodwill impairment against the education business in 2018, on top of £5.7m taken for restructuring and legal provisions elsewhere in the group.

House broker Cenkos cut its adjusted forecasts by 30 per cent following the most recent results, citing trading weakness and higher exceptional charges. This was merely the latest in a series of downgrades, with cuts to EPS forecasts in both March and September last year.

Tough times are expected to continue. Ms Robertson says the group is expecting “continued market and technological disruption and downward pricing pressure”, even before factoring in Brexit-related uncertainty.