InterQuest Group Plc Interim Results 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:

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

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

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

Unaudited condensed interim statement of changes in equity

Unaudited condensed consolidated interim statement of cash flows

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