InterQuest Group plc Final Results
InterQuest Group plc Final Results
InterQuest Group plc (AIM: ITQ), the specialist IT recruitment group, is pleased to announce its audited results for the year ended 31 December 2011.
§ Revenue £120.9m (2010: £112.2m) up 8%
§ Net fee income (NFI) £16.6m (2010: £14.7m) up 14%
§ EBITA before non-recurring items and IFRS 2 charges £3.8m (2010: £3.6m) up 4%
§ Loss for the year £1.1m (2010: £1.8m profit)
§ Basic adjusted earnings per share 8.0 pence (2010: 8.6 pence) down 7%
§ Basic loss per share 3.4 pence (2010: earnings of 6.1 pence)
§ Net cash from operating activities £2.6m (2010: £1.8m)
§ Net debt increased from £2.7m at start of 2011 to £5.5m at 31 December 2011
§ Second interim dividend of 2 pence per share is proposed and will be paid on 12 April 2012 (2010: 2 pence per share) bringing the total dividend for the year to 2.5 pence per share (2010: 2.5 pence per share)
§ Exceptional charge of £2.9m comprising impairment and other costs following notification of apparent impropriety within a major client of Contract Connections Limited
EBITA Earnings before interest, tax and amortisation.
§ Investment in Singapore, the Group's first international office, provides platform for expansion
§ IT industry seeing areas of growth, particularly in financial services and retail
§ Non public sector NFI grew by 22% to £14.7m (2010: £12.0m)
§ Successful programme to increase permanent recruitment resulted in 34% increase in Permanent NFI to £5.0m (2010: £3.8m)
§ IQ Equity businesses profitable
§ Group fee earner headcount increased by 17% to 169 31 December 2011 (31 December 2010: 144)
§ Clear strategy in place for UK and International expansion
Gary Ashworth, Executive Chairman: "The Group commenced its plan for accelerated growth in 2011, with the appointment of Mark Braund as CEO in April 2011. This has led to investment in overseas markets and organic growth in both contract margin and permanent placement levels. Despite the sluggish nature of UK markets in 2011, I am delighted with the progress which has been achieved in the year.
With market conditions and margins in the UK now improving slightly, plus the operational contribution we expect from the already profitable IQ Equity businesses and our investment in Asia, I am confident that we will see Net Fee Income grow respectably in 2012, enabling increased investment in the business both in the UK and internationally."
The Group commenced its plan for accelerated growth in 2011, with the appointment of Mark Braund as CEO in April 2011. This has led to investment in overseas markets and organic growth in both contract margin and permanent placement levels. Despite the sluggish nature of UK markets in 2011, I am delighted with the progress which has been achieved so far.
Revenue for the year increased by 8% to £120.9m and Net Fee Income by 14% to £16.6m, confirming our position as one of the largest IT recruiters in the UK.
Within these figures, the IQ Equity majority owned businesses that we have seeded over the last two years delivered their first full year of profit, and EBITA before non-recurring items and IFRS 2 charges across the Group as a whole increased by 4% to £3.8m (2010: £3.6m).
While we have begun a programme to grow our permanent recruitment activities, 70% of our NFI came in the year from the recurring revenue associated with contract recruitment. This revenue provides a strong, profitable base for the business moving forward.
Perhaps one of the most significant developments in the year was the opening of our first overseas office in Singapore an important first step towards the broadening of our fee income outside the UK. We have been pleased with the initial success of the office. Following the end of the year under report, we have taken further steps to align our strategy towards the areas of the technology market which we believe will provide InterQuest with an increased opportunity for growth.
A great deal of the success of a recruitment business depends upon the quality of its staff. We continued to "grow our own" sales force via our iQAD training academy programme and have added a middle managers training programme. We are confident we have one of the most skilled recruitment workforces in the UK.
The Board is recommending a second interim dividend of 2p which in addition to the interim dividend of 0.5p maintains the total for the year of 2.5p.
With market conditions and margins in the UK improving slightly, plus the operational contribution we expect from the already profitable IQ Equity businesses and our investment in Asia, I am confident that we will see Net Fee Income grow respectably in 2012, enabling increased investment in the business both in the UK and internationally.
I would like to thank all of our staff for their passion, commitment and hard work over the last twelve months.
6 March 2012
Chief Executive's Report
InterQuest is a group of specialist recruitment businesses, placing both Contract and Permanent staff into niche disciplines within the information & communications technology sector (ICT).
We operate a balanced portfolio of recruitment businesses with an increasing focus on markets where there is both growth in demand and a shortage of key technology skills. Our interests are aligned to customers where quality is much more valued than quantity and as such, we increasingly target markets where our services derive higher than industry average margins.
The Group delivered a solid performance in 2011 growing net fee income (NFI) by 14% to £16.6m and EBITA before non-recurring items and IFRS 2 charges by 4% to £3.8m, in a lacklustre UK market impacted by slow economic growth and market uncertainty.
Significant, is the 22% growth in NFI earned by our businesses operating in markets outside the Public Sector, which as an industry sector has witnessed a steady decline in demand due to government cutbacks in expenditure. This shift in market focus and performance demonstrates the increasing level of agility at InterQuest to direct our expertise into markets where there is both growth in demand and a shortage of key technology skills.
Public Sector represented just 12% of the Group's NFI in 2011 (18% in 2010). It is worth noting that despite depressed demand we saw modest growth in NFI of 2% in our Public Sector business as we moved from the first half into the second half of 2011. This not only shows the strength of our brand in a market that has shrunk dramatically, it also acknowledges the strength of our value proposition - something we intend to further leverage across all our businesses in the following year to win market share from our competitors.
To strengthen our position for profitable growth the Group has begun to implement its strategy to streamline and focus its business into niche markets with strong demand for highly skilled niche candidates and to develop its footprint overseas in stable yet fast growing markets.
Early signs of success in following this strategy have enabled InterQuest to lift gross margins. Overall gross margin has improved by 80-basis points from 13.0% to 13.8%. Just as importantly, we converted 22.6% of our gross profit (or NFI) into EBITA before non-recurring items and IFRS 2 charges of £3.8m.
Equally impressive is the improvement in Contract recruitment margins (excluding PayQuest Group Limited) these have improved on a run-rate basis during 2011 by 120-basis points increasing from 9.6% at the beginning of the year to 10.8% in December 2011, despite the intense competitive nature of the UK market during this period.
Leveraging best practice across the Group also helped redefine our Permanent recruitment capability, lifting performance to £5.0m of NFI, up 34% on the previous year (2010: £3.8m).
Whilst I am delighted to report NFI from Permanent recruitment has increased, it is reassuring to recognise that 70% of our income comes from the recurring revenue associated with our specialist Contract recruitment business.
New Customer Acquisition
Improvements to our performance in winning new business helped InterQuest add a further 261 new customer accounts from which we derived £3.0m of incremental NFI in 2011 18% of the total. With a strong track record of customer retention, these new customers are set to add further income in the year to follow.
The Group's Solutions business, which provides customers with a single, easy-to-use process to source and pay for a selection of specialist recruitment services from niche businesses within InterQuest, also delivered growth, adding two new mid-sized RPO contracts to their customer base.
IQ Equity grows into Profit
IQ Equity delivered strong growth in 2011. Our majority-owned business-incubator for recruitment entrepreneurs achieved NFI growth of 53% to enable IQ Equity to deliver its first full year of profit.
Developing our International footprint
In 2011 InterQuest made its first material step into international markets by opening an office in Singapore a recruitment market experiencing sustained growth in which a large number of our UK customers are present. We have attracted an experienced local team under the direction of an experienced local executive, with a solid track record of growing specialist recruitment businesses in the region. The first commercial fee earning placements, both Contract and Permanent, have been made and the office sees a growing pipeline of opportunities.
InterQuest Group operates a portfolio of specialist recruitment businesses operating in deliberately targeted markets. All of these markets experienced growth in NFI during 2011 with the exception of Public Sector.
The strongest sector growth came from Financial Services and Retail. Financial Services experienced a level of volatility through the year as pressures within the industry sector ebbed and flowed. Retail however has seen sustained growth brought on largely by demand for specialist skills in areas such as ecommerce, digital media and analytics niche markets in which InterQuest has a strong niche capability to support.
At the heart of our success are the exceptional people that make up our team throughout the InterQuest Group. In addition to our thanks for a solid year of improving the business in a tough market, we have continued our programme of people development. The focus of our efforts include
Ø Industry leading training and development 80% of our new Recruitment Specialists are 'home grown', passing through an intensive iQAD training programme (iQAD : InterQuest Advanced Development).
Ø Development of a highly competitive remuneration package and career structure.
Ø A strong and focused management development programme to support personal aspirations and the scalability of our business.
These initiatives have helped us retain exceptional talent in our team and underpinned the growth in the number of fee earners across the Group from 147 at the start of the year to 169 in December 2011.
We continue into 2012 the process begun in the second half of 2011, restructuring the business to align our strategy towards sectors of the market we believe provide InterQuest with increased opportunity for profitable growth. The central elements of this strategy are
Ø To increase our International footprint in Asia, Europe and UAE.
Ø To carry out further investment in key niche disciplines such as Analytics, Business Intelligence, Digital Media, eCommerce, ERP, Infrastructure and Enterprise Service Management, Project and Programme management.
Ø The migration of our candidate-centric recruitment business - sometimes referred to as Spot Recruitment - into a single, separate practice aimed at placing niche candidates into niche roles rather than just filling vacancies.
I am also delighted with the post-balance sheet appointment to the InterQuest Board of Gary Goldsmith as Chief Operating Officer. Gary is a highly experienced Recruitment Executive with an exceptional track record of building industry leading recruitment practices operating in the UK and overseas - his appointment is complimentary to, and indicative of, our ambition. As such, 2012 will be a year of continued investment to strengthen the quality and performance of the key attributes of our business, specifically our people, our value proposition and the recognition of our brand.
Inevitably there will be a 'cost of change', however this change is rapidly being completed to set the business on a clear path towards strong growth in resilient markets in 2013 and beyond.
We will use the appropriate measures and key performance indicators (KPI's) to monitor progress in both real-time and on a periodic basis, remaining agile in our response to material changes in market conditions.
6 March 2012
Finance Director's Report
Revenue (all from continuing operations) increased by 8% during 2011 to £120.9m (2010: £112.2m).
Net fee income ("NFI")
Net fee income increased by £1.9m or 14% to £16.6m (2010: £14.7m). Our net fee income (gross margin) percentage increased from 13.0% to 13.8% reflecting the fact that a larger proportion of our gross profit was derived from permanent recruitment in 2011 30% versus 26% in 2010.
Our contract recruitment gross margin % was unchanged from 2010 at 10%. It is worth noting that PayQuest Group Limited, our contractor payroll service (not recruitment) business which operates a 2% gross margin contributed £8.2m of our turnover in 2011 versus only £2.7m in 2010. Our recruitment businesses therefore registered an improvement in contract % margin from 10.3% to 10.6%.
As pointed out in the operational review our contract margin has been on an upward trend by month during 2011 registering a 120 basis point increase between January and December 2011.
EBITA before non-recurring items and IFRS 2 share charge increased by 4% to £3.8m (2010: £3.6m).
The intangible asset amortisation decreased by 28% to £0.7m (2010: £1.0m). The net finance cost increased to £0.3m (2010: £0.2m), as we have utilised our invoice discounting facilities to fund our contract business as well as the acquisition of Contract Connections Limited during the year.
Loss before tax increased to £0.2m (2010: profit of £2.2m).
Tax on profits was £0.9m a detailed analysis is included at note 6.
Loss per share and dividend
Basic loss per share was 3.4 pence (2010: earnings of 6.1 pence). When non-recurring items, amortisation and the IFRS 2 share based payment charge and the deferred tax credits in respect of the three items are removed, the basic adjusted earnings per share is 8.0 pence representing a decrease of 7% from 8.6 pence in 2010. See note 7 for details of the calculation.
An interim dividend of 0.5 pence per share (2010: 0.5 pence) was paid on 28 October 2011. A second interim dividend of 2 pence per share (2010: 2 pence per share) has been proposed. The dividend will be paid on 12 April 2012 to all eligible shareholders on the register as at 14 March 2012. The corresponding ex-dividend date will be 16 March 2012.
Acquisition of Contract Connections Limited
On 21 June 2011 the Group acquired the entire share capital of Contract Connections Limited for a total consideration of £3.7m in cash and £0.3m in new InterQuest Group Plc shares issued at 63.5 pence each.
Following notification of an apparent impropriety and alleged fraud within a major client of Contract Connections Limited and the termination of the contract between Contract Connections Limited and the client, the Board conducted an impairment review on the carrying value of the goodwill arising on the acquisition of the company. The impairment review was based on the value in use of the company using a discount rate of 10.48%. The discount rate represents the weighted average cost of capital of the 'Private Other' segment. The post acquisition results of the company are included within the 'Private Other' segment. As a result of the review, an impairment charge of £2m has been recognised in the financial year and has been treated as a non-recurring item.
A provision of £0.5m has been made in the financial year, and treated as a non-recurring item, to impair certain trade receivable balances which have been withheld as a result of the alleged fraud.
A further £0.4m of costs have been treated as non-recurring during the period which relate to the acquisition of Contract Connections Limited, an onerous lease provision within the Company, some redundancy costs, certain professional fees in connection with the Group's independent investigation by forensic accountants into the alleged fraud and legal fees in connection with a warranty claim announced on 8 February 2012 totalling £3.8m (see note 10).
Balance sheet, cash flow and financing
The Group's net assets decreased by £1.4m to £19.5m at 31 December 2011 (2010: £20.9m).
Underlying profitability and tight control of working capital delivered £3.4m of operating cash flow (before tax and interest payments). The Group paid £0.8m of corporation tax and £0.3m of interest during the year. Net capital expenditure was £0.6m and dividends of £0.8m were paid. The cash consideration paid to the vendors of CCL was £3.7m and as a result of these cash flows, net debt increased from £2.7m at the start of the year to £5.5m at the end of 2011.
6 March 2012