InterQuest Group Plc Interim Results 2017

Pubished 22nd September 2017


InterQuest Group plc

(“InterQuest” or “the Group”)

Interim Results

InterQuest Group plc (AIM: ITQ), the specialist recruitment business operating in the ‘new digital economy’, announces its unaudited interim results for the six months ended 30 June 2017.

Financial highlights

  • Revenue down 6% to £69.1m (2016: £73.8m)
  • Net Fee Income (“NFI”) increased 2% to £11.2m (2016: £11.0m)
  • NFI from permanent placements increased 34% to £5.1m (2016: £3.8m)
  • NFI from temporary contract placements decreased 15% to £6.0m (2016: £7.1m)
  • Adjusted PBT* down 23% to £1.0m (2016: £1.3m)
  • Like for like PBT* excluding Rees Draper Wright down 62% to £0.5m (2016: £1.3m)
  • Net profit of £0.2m (2016 after goodwill impairment of £3.2m: £2.4m loss)
  • Diluted adjusted earnings per share 2.2 pence (2016: 3.0 pence)
  • Basic earnings per share of 0.5 pence (2016: 6.7 pence loss)
  • Net cash generated in operating activities £3.0m (2016: net cash used £2.9m)
  • Net debt, consisting of our working capital facility net of cash balances held, decreased during the period to £3.3m (2016: £9.9m)
  • No interim dividend paid (2016: 0.5 pence)
  • The average permanent fee per placement, excluding the higher value fees earned from the executive search division, has increased by 7% to £7.3k (2016: £6.8k) through emphasizing the development and placement of senior relationships and roles.

*Adjusted for share based payment charge, amortisation, impairment and non-recurring items

Operational highlights

§ The Group has added a further significant client in the Solutions division. Net Fee Income earned through Solutions clients increased by 14% to £1.9m (2016: £1.6m).

§ The Group increased its bank facility to £24m (2016: £20m) and reduced banking costs with a new banking arrangement agreed through HSBC.

Chris Eldridge, Chief Executive Officer, commented: “The Group has generated profit before tax, share based payments and non-recurring costs of £1m, a reduction from £1.3m in the same period in 2016. Like for like profit before tax, share based payments and non-recurring costs, excluding Rees Draper Wright acquired in August 2016, amounted to £0.5m a reduction of 62%. The Group continues its transformation programme at ECOM which has seen the division’s profits grow marginally in the period following a non-cash impairment charge of £3.2m in the prior year due to a significant reduction in profitability. The financial services, analytics, networks and public sector have seen a decline in demand compared to the prior period which has impacted our results for the year. We have added a further client to our Solutions business and we continue to develop our business geographically focusing on higher margin opportunities as evidenced by the fact that our contract recruitment margins and average permanent placement fees have increased during the period.

Gary Ashworth, Chairman, commented: “The Group’s results for the first half of 2017 continue to reflect the challenging nature of the UK staffing business during the ongoing Brexit uncertainty and are below our expectations. Rees Draper Wright has given the Group a platform to expand into the US market and we have invested in that market by expanding the InterQuest offering into our New York office. A structural change in the senior management at the end of 2016 and early 2017 has meant further restructuring of certain divisions which will take some time to develop but which we estimate will contribute to profits in the medium and long term.

On behalf of the Board I would like to thank all of my colleagues across the Group for their contribution to the transformation and for their commitment to the future success of the Group.”

This announcement contains inside information for the purposes of Regulation (EU) No 596/2014.

Enquiries:

Chris Eldridge, Chief Executive Officer

David Bygrave, Chief Financial Officer

+44 (0)20 7025 0100

+44 (0)20 7025 0100


Chief Executive’s Review

Our customers continue to adapt to the transformative nature of the digital economy, willing to consider digital solutions in almost every aspect of their business process. Every industry has been affected and InterQuest is delivering solutions to staffing needs in mainstream and disruptive tech companies, as well as aviation and mining among many others that need permanent and contract recruitment in the areas of digital design, cyber security, digital networks, analytics, change management and other high end niche skills sets.

Market demand for these skills is increasing and continues to outstrip supply with the Group’s resourcing talent specialising in finding and delivering skilled candidates for its customers. Key to resourcing these critical experienced individuals is the Group’s award winning marketing function for candidates which generates information and encourages debate for customers and candidates alike.

The Group’s contractor numbers were affected in 2016 and continued into 2017 by a reduction in demand in financial services post Brexit and also in the public sector which saw a further squeeze from the public purse. Action has been taken to refocus these businesses and gradual signs of recovery are already being seen in the public sector business. In 2017 the Group has engaged new senior management in additional areas affected by the lower contractor levels, namely analytics, telecommunications and other niche sectors.

The Group continues to invest in learning and development for our staff resulting in an improvement in retention rates.

During the first half of the year the Group has expanded the Rees Draper Wright office in New York to incorporate staff from InterQuest focused on opportunities in digital design, analytics, risk and cyber security. The Group also leased a new headquarters building in London with the ability to seat approximately 130 staff and staff from the three offices in London are gradually moving there as the refurbishment allows.

The non-recurring costs incurred by the Group in the defence of the bid by Chisbridge Limited amounted £0.5m.

On entering the second half of 2017 the business has become more heavily weighted towards fees from permanent placements with 46% of Net Fee Income being generated from permanent placement fees (2016: 35%). Permanent placement fees are, by their very nature, more volatile, particularly in the higher value search business.

Like for like average permanent recruitment fees were 7% higher in the first half of 2017, excluding the impact of the executive search division which has significantly higher than normal average permanent fees. Contract recruitment margins for professional recruitment deals (those at margins over 12%) increased from 17.6% in 2016 to 18.0% in 2017 although the volume decreased, with net fee income from these contractors declining by £1m compared to 2016. Contract recruitment margins on all deals (excluding payroll) decreased to 12.8% from 13.2%.

The Group’s policy of not declaring a dividend until EBITDA is at least twice the net debt of the Group means that no interim dividend has been declared (2016: 0.5 pence).

The trading performance in the first half of 2017 was disappointing but masks further operational progress made across a number of our key developmental objectives including growing our managed service business, enhancing the Group’s learning and development capability, improving retention, enabling increased levels of cross selling and preparing for international expansion. However, the Group is conscious of the continued economic uncertainty in the UK and continues to progress its plans keeping them sufficiently responsive to further changes in market conditions.

I thank all our colleagues across the InterQuest Group for their exemplary determination to meet the needs of our customers and those of the Group.

Chris Eldridge, Chief Executive Officer

22 September 2017

Unaudited condensed consolidated interim statement of comprehensive income

6 months to 30 June 2017

6 months to 30 June 2016

12 months to 31 December 2016

Unaudited

Unaudited

Audited

Note

£’000

£’000

£’000

Revenue

69,079

73,770

143,610

Cost of sales

(57,901)

(62,816)

(121,863)

Gross profit

11,178

10,954

21,747

Amortisation

(202)

(172)

(345)

Other administration costs

(9,827)

(9,341)

(18,154)

Total administrative expenses

(10,029)

(9,513)

(18,498)

Operating profit before non-recurring items

1,149

1,441

3,249

Impairment

8

-

(3,152)

(3,152)

Acquisition costs

-

-

(28)

Share based payment charge

(35)

(272)

(212)

Other non-recurring items

5

(580)

(34)

(284)

Operating profit/(loss)

534

(2,017)

(427)

Finance costs

(130)

(178)

(312)

Profit/(loss) before tax

404

(2,195)

(739)

Income tax expense

6

(206)

(214)

(505)

Profit/(loss) for the period/year

198

(2,409)

(1,244)

Profit/(loss) and total comprehensive income/(expense) for the period/year

198

(2,409)

(1,244)

Attributable to:

Owners of the parent

188

(2,436)

(1,297)

Non-controlling interests

10

27

53

Total comprehensive income/(expense) for the period/year

198

(2,409)

(1,244)

Earnings per share:

Pence

Pence

Pence

Basic earnings/(loss) per share

0.5

(6.7)

3.4

Diluted earnings/(loss) per share

0.5

(6.5)

3.3

All results for the Group are derived from continuing operations in the current and prior periods.

The accompanying notes form an integral part of this unaudited condensed consolidated interim report.

Unaudited condensed consolidated interim statement of financial position

30 June 2017

30 June 2016

31 December 2016

Unaudited

Unaudited

Audited

Note

£’000

£’000

£’000

ASSETS

Non-current assets

Property, plant and equipment

402

533

480

Investments

-

-

60

Goodwill

16,596

15,715

16,596

Other intangible assets

685

827

887

Total non-current assets

17,683

17,075

18,023

Current assets

Trade and other receivables

25,519

31,967

25,978

Cash and cash equivalents

1,622

807

1,541

Total current assets

27,141

32,774

27,519

Total assets

44,824

49,849

45,542

LIABILITIES

Current liabilities

Trade and other payables

(17,158)

(17,293)

(14,828)

Borrowings

9

(4,950)

(10,752)

(7,094)

Current tax payable

(455)

(1,030)

(1,218)

Total current liabilities

(22,563)

(29,075)

(23,140)

Non-current liabilities

Deferred income tax liability

(296)

(205)

(296)

Total non-current liabilities

(296)

(205)

(296)

Total liabilities

(22,859)

(29,280)

(23,436)

Net assets

21,965

20,569

22,106

EQUITY

Share capital

376

363

374

Share premium account

11,338

10,646

11,338

Capital redemption reserve

12

12

12

Retained earnings

8,361

7,666

8,549

Share based payment reserve

2,446

2,471

2,411

Share buy back reserve

(666)

(666)

(666)

Total issued share capital and reserves attributable to the owners of the parent

21,867

20,492

22,018

Non-controlling interests

98

77

88

Total equity

21,965

20,569

22,106


The accompanying notes form an integral part of this unaudited condensed consolidated interim report.

Unaudited condensed interim statement of changes in equity

Share capital

Share premium account

Capital redemption reserve

Retained earnings

Share based payment reserve

Share buy back reserve

Non controlling interest

Total equity

£’000

£’000

£’000

£’000

£’000

£’000

£’000

£’000

Balance at 1 January 2016 - Audited

359

10,632

12

10,829

2,199

(666)

50

23,415

Comprehensive income

Profit for the period

-

-

-

(2,436)

-

-

27

(2,409)

Total comprehensive income for the period

-

-

-

(2,436)

-

-

27

(2,409)

Transactions with owners

Movement in share based payment reserve

-

-

-

-

272

-

-

272

Issue of share capital

4

14

-

-

-

-

-

18

Dividends

-

-

-

(727)

-

-

-

(727)

Total transactions with owners

4

14

-

(727)

272

-

-

(437)

Balance at 30 June 2016 - Unaudited

363

10,646

12

7,666

2,471

(666)

77

20,569

Balance at 1 July 2016

363

10,646

12

7,666

2,471

(666)

77

20,569

Comprehensive income

Profit for the period

-

-

-

1,139

-

-

26

1,165

Total comprehensive income for the period

-

-

-

1,139

-

-

26

1,165

Transactions with owners

Movement in share based payment reserve

-

-

-

-

(60)

-

-

(60)

Issue of share capital

11

692

-

-

-

-

-

703

Deferred tax credit

-

-

-

(103)

-

-

-

(103)

Dividends

-

-

-

(168)

-

-

-

(168)

RDW step acquisition MI acquired

-

-

-

15

-

-

(15)

-

Total transactions with owners

11

692

-

(256)

(60)

-

(15)

372

Balance at 31 December 2016 - Audited

374

11,338

12

8,549

2,411

(666)

88

22,106

Balance at 1 January 2017

374

11,338

12

8,549

2,411

(666)

88

22,106

Comprehensive income

Profit for the period

-

-

-

188

-

-

10

198

Total comprehensive income for the period

-

-

-

188

-

-

10

198

Transactions with owners

Movement in share based payment reserve

-

-

-

35

-

-

35

Issue of share capital

2

-

-

-

-

-

-

2

Dividends

-

-

-

(376)

-

-

-

(376)

Total transactions with owners

2

-

-

(376)

35

-

-

(339)

Balance at 30 June 2017 - Unaudited

376

11,338

12

8,361

2,446

(666)

98

21,965

Unaudited condensed consolidated interim statement of cash flows

6 months to 30 June 2017

6 months to 30 June 2016

12 months to 31 December 2016

Unaudited

Unaudited

Audited

£’000

£’000

£’000

Cash flows from operating activities

Profit/(loss) after taxation

198

(2,409)

(1,244)

Adjustments for:

Depreciation

381

221

411

Share-based payment charge

35

272

212

Finance costs

130

178

312

Unrealised gain on investment

(2)

-

-

Amortisation

202

172

345

Impairment

-

3,152

3,152

Income tax expense

206

214

505

Increase in trade and other receivables

459

(4,550)

1,439

Reclassification of investments held in current assets

62

-

-

Increase in trade and other payables

2,330

594

(1,870)

Cash generated from/(used in) operations

4,001

(2,156)

3,262

Income taxes paid

(969)

(759)

(755)

Net cash generated from/(used in) operating activities

3,032

(2,915)

2,507

Cash flows from investing activities

Purchase of property, plant and equipment

(303)

(144)

(279)

Acquisition of subsidiaries, net of cash acquired

-

-

(1,503)

Investment income

3

-

-

Net cash used in from investing activities

(300)

(144)

(1,782)

Cash flows from financing activities

Proceeds from issue of share capital

2

18

721

Net (decrease) / increase in discounting facility

(2,144)

3,572

(86)

Interest paid

(133)

(178)

(312)

Dividends paid

(376)

(727)

(923)

Net cash (used in) / received from financing activities

(2,651)

2,685

(600)

Net increase in cash and cash equivalents

95

(374)

125

Effects of currency translation on cash and cash equivalents

(14)

-

235

Cash and cash equivalents at beginning of period/year

1,541

1,181

1,181

Cash and cash equivalents at end of period/year

1,622

807

1,541

The accompanying notes form an integral part of this unaudited condensed consolidated interim report.