Final Results

6th March 2012

Embargoed until 7am.

InterQuest Group plc

("InterQuest" or "Group")

InterQuest Group plc (AIM: ITQ), the specialist IT recruitment group, is pleased to announce its audited results for the year ended 31 December 2012.

Financial Highlights

- Revenue £112.7m (2011: £120.9m) down 7 % 

- Net fee income (gross profit or NFI) £16.4m (2011: £16.7m) down 2 % 

- Gross profit margin % up 70 basis points at 14.5% (2011: 13.8%)

- Gross profit margin % on contractor recruitment business (excluding PayQuest and payroll deals) up 60 basis from 10.9% to 11.5%

- EBITA before non-recurring items and share based payment charge £1.8m (2011: £3.8m) down 53% (see note 1 for reconciliation)

- Loss for the year £0.1m (2011: £1.1m loss)

- Basic adjusted earnings per share 3.5 pence (2011: 8.0 pence) down 56% 

- Basic loss per share 0.4 pence (2011: loss per share of 3.4 pence)

- Net cash from operating activities £0.9m (2011: £2.6m) 

- Cash generated from operations pre-tax £1.9m (2011: £3.4m)

- Net debt decreased from £5.5m at start of 2012 to £4.4m at 31 December 2012 

- Second interim dividend of 2 pence per share is proposed and will be paid on 12th April 2013 (2011: 2 pence per share) bringing the total dividend for the year to 2.5 pence per share (2011: 2.5 pence per share)

EBITA = Earnings before interest, tax and amortisation

Operational Highlights

- Extensive restructure of all of our core businesses into specialist niche focused divisions by either technology or industry specialization

- Successful rebranding of these "IQ" niches rolled out across the Group

- Migration of all of these businesses onto a single best practice operating platform

- First international office opened in Singapore in late 2011 provides platform for expansion

Outlook

Gary Ashworth, Executive Chairman, commented: "We transformed our business during 2012 and I am pleased to say that we are now organised into keenly focused niche businesses utilising a common methodology, a single operating platform and new IQ branding. We invested in a spot recruitment business in 2012 which did not deliver to our expectations and has now been decisively curtailed. As we enter 2013, we have a significantly reduced cost base compared to mid 2012 and our January and February NFI is circa 5% ahead of a year ago. I believe that this stands us in good stead for the year ahead."

For further information please contact:

InterQuest Group plc Charles Stanley Securities

020 7025 0100 020 7149 6764

Gary Ashworth, Executive Chairman Marc Milmo

Michael Joyce, Finance Director Karri Vuori

Chairman's Statement

Our major achievement in 2012 is that we have successfully reorganised ourselves from a group of affiliated IT recruitment businesses into clearly defined specialist businesses utilising a common methodology, a single operating platform and new IQ branding. This has laid the foundations for scalability in our operations and should provide a platform for organic growth in the future.

We are now organised into keenly focused niche businesses which aim to supply our clients with specialist solutions for difficult to fill roles and consequently command higher margins.

We also opened our first overseas office in Singapore at the start of the year.

These investments have been made at the expense of short term profitability but should deliver long term shareholder value in the future.

In a difficult UK market the Group experienced a 7% decrease in revenue but only a 2% decrease in net fee income as our focus on specialization delivered increased margins.

EBITA before non-recurring items and IFRS 2 charges decreased by 53% to £1.8m (2011: £3.8m). The key components of this decrease were:-

- Significant net expenditure of circa £0.9m to rapidly ramp up Mint Recruitment Solutions, a candidate centric spot recruitment business which did not deliver upon expectations;

- A downturn in our Financial Markets business which experienced a 22% decrease in net fee income compared to 2011 which we believe represents a better performance than the market generally in that sector;

- Net expenditure of £0.4m in our Singapore office which, although it cost a little more and took a little longer than we expected has given us a solid platform for future growth in that market; and

- Net expenditure of £0.3m in a London based International business which did not deliver upon expectations.

In the case of Mint Recruitment Solutions and our London International desk we have taken decisive action and significantly scaled back our investment in Mint and closed the London International desk. In Financial Markets we have fine tuned our business to deliver efficiently on lower margin accounts and deployed new, skilled resource in compliance, analytics and risk.

Conversion of EBITA into cash was very good and the Group delivered a pre-tax operating cash inflow of £1.9m (2011: £3.4m)

The Board is recommending a second interim dividend of 2 pence per share which maintains the total dividend for the year at 2.5 pence per share in line with our progressive dividend policy.

In December 2012, we successfully concluded our warranty claim against the vendors of Contract Connections Limited (which was acquired in 2011) and recovered £1.0m cash as a refund of purchase consideration. A further review of the remaining carrying value of the intangibles and goodwill associated with the business of Contract Connections was carried out by the Directors and as a result of that review the intangible assets and remaining goodwill have been written down to zero carrying value as at 31 December 2012.

Market conditions remain uncertain as we start 2013 but I am confident that, as a result of the changes and investments we have made in 2012, we are in the best shape that we possibly can be to meet the challenges of the future.

Any company is only as good as its people, particularly a recruitment company, and I believe that we have one of the most skilled and committed workforces in the industry. I would like to thank them for their passion, commitment and hard work over the last twelve months.

Gary AshworthChairman, 6th March 2013

Chief Executive's Report 

InterQuest is a group of specialist recruitment businesses, placing both Contract and Permanent staff into niche disciplines within the analytics, financial and technology market sectors.

We operate a portfolio of recruitment businesses with an increasing focus on markets where there is both growth in demand and a shortage of key 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.

InterQuest continues to pursue a strategy underpinned by strong recurring revenues from Contractor recruitment. Whilst delighted to deliver solid improvement in Permanent recruitment performance, the core contributor to our NFI remains Contract business; providing £11.2m (68%) of the total £16.4m NFI of the Group (2011: £11.6m comprising 70% of £16.7m). Permanent recruitment delivered £5.2m NFI in 2012 (2011: £5.1m), up 2%.

Despite the challenges and volatility in the UK recruitment industry we have seen strong growth in some of the niche sectors of our business, rewarding our focus on key market areas of demand; difficult to fill roles and critical hires that provide specific value to our Customer's programmes and projects.

Within our private sector 'other' segment notable highlights include the IQ Analytics recruitment business which generated +84% NFI growth YOY, Telecoms up +54% and IQ ESM (Enterprise Systems Management) which was up +16%. Our well established Public Sector business experienced a 3% decrease in NFI comprising a return to Contractor growth with Contractor NFI (which comprises 91% of the NFI) up +3% but a decline in Permanent recruitment fee's (less than 10% of the NFI) of -36%.

Financial Markets experienced contraction in NFI of 22% from £5.5m in 2011 to £4.3m in 2012. However, this appears slightly better than, or at least in line with market data, which supports the technology recruitment sector in Financial Markets shrinking by greater than 30% during the same period.

We have taken the opportunity to fine-tune our operation to provide a fit for purpose delivery model and cost base to better support our business in this market. As we have done so, we have shifted more resource and expertise into the key areas of demand emerging in the sector, specifically Compliance, Analytics and Risk. Whilst the traditional technology recruitment sector in Financial Markets has experienced a drop in demand, we have seen a surge in requirements for skilled resource in these specialist disciplines with NFI in 2012 near double the prior year.

Whilst the focus on niche markets has provided evidence to support our strategy going forwards, the spot business model we had invested in at MINT along with the closely associated London based international recruitment desk has fallen short of expectations. The resulting sales and infrastructure investment weighed heavily on profitability during the period masking the relative success of our businesses elsewhere in the Group. As a result, we have scaled back our investment in MINT, retaining the best talent including key middle managers who now report directly to the CEO.

InterQuest has made its first material step into international markets with an office in Singapore; a recruitment market in which a number of our UK Customers are present. We have 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. 2012 saw the business generate close to SGD $1million NFI (GBP £0.5million) from a standing start, billing 23 Customers in a market that had its own share of economic challenges during the period. We view this as a solid performance, setting a platform for further growth in 2013.

Further improvement to our performance in winning new business helped InterQuest add a further 331 new Customer accounts in 2012, up +32% on prior year and from which we derived £3.1million of incremental NFI in 2012; 19% of the total. With a solid track record of Customer retention, these new Customers are set to add further income in the year to follow. Not withstanding this incremental new business, total NFI decreased by 2% from £16.7m to £16.4m reflecting contraction in some key accounts, particularly in Financial Markets.

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, retaining and growing their key accounts and adding one further new mid-sized Managed Service contract to their Customer base.

Restructure

We completed the transition of our operational business into specialist niche and industry segmented businesses during the first half of 2012.

We have also updated and streamlined our support systems to provide greater efficiency and speed of execution. Whilst we have the final phase of back office consolidation to complete, we now have an infrastructure that is robust and easily scalable consequently we are able to remove complexity and cost from the operation of the business.

One off restructuring costs of £0.7m have been incurred in 2012, for further details of these costs please see Note 2. We believe that the majority of restructuring costs have been incurred in 2012 and do not expected any material charges in 2013.

People

At the heart of our progress 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;

- Industry leading training and development; a proportion of our new Recruitment Specialists are 'home grown', passing through an intensive iQAD training programme (iQAD : InterQuest Advanced Development).

- Development of a highly competitive remuneration package and career structure.

- A strong and focused management development programme to support personal aspirations and the scalability of our business.

These initiatives have helped us develop exceptional talent and underpin our success in providing a market winning value proposition in 2013.

Outlook

Following the end of the year under report, we have taken further steps to align our strategy towards sectors of the market we believe will provide InterQuest with increased opportunity for profitable growth.

The Permanent recruitment market is becoming more refined as employers seek to leverage low cost sourcing models, including further development of their own direct sourcing capability. As a result the recruitment industry's share of this market will continue to come under pressure, especially during a period of economic uncertainty.

The focus of InterQuest is to continue to specialise, developing unique networks and talent pools of passive Candidates. This moves us towards a position of strength in an uncertain economy; targeting critical roles that are difficult to fill and thereby strengthening our value proposition in this market.

Contract recruitment is divided into 'generic' and 'specialist' markets. InterQuest is increasingly focused on the 'specialist' market. The 'generic' market is maturing rapidly, resulting in margin erosion as large service providers compete more often than not on price. InterQuest's strategy of targeting in-demand, specialist markets has helped us change the mix of our Contract business in favour of 'specialist' rather than 'generic' Contract business and as such supported the improvement in our margins, even in challenging market conditions.

We are well positioned for the year ahead with NFI from Contract recruitment operations in January 2013 6% higher than January 2012.

The central elements of our strategy in 2013 are;

- Further fine tune our investment in key niche and specialist disciplines to improve service value and margins.

- Leverage the opportunity to cross-sell into existing Customers delighted with our service, the capability of our other complimentary niche recruitment businesses

- Develop greater brand recognition and value through aligning each of our recruitment businesses under the banner of a single InterQuest brand.

We will monitor progress in both real-time and on a periodic basis; remaining agile in our response to material changes in market conditions.

Mark Braund

Chief Executive, 6th March 2013

Finance Director's Report

Revenue

Revenue (all from continuing operations) decreased by 7% during 2012 to £112.7m (2011: £120.9m).

Net fee income ("NFI")

Net fee income decreased by £0.3m or 2% to £16.4m (2011: £16.7m).

Our net fee income (gross margin) percentage increased from 13.8% to 14.5% reflecting the first gains in our contractor recruitment % margin from our strategy of focusing on specialist and difficult to fill roles which command higher margins.

The split of NFI between contract and permanent recruitment activities remained fairly constant at 68:32 in favour of contract, from 70:30 in 2011.

Our contract recruitment gross margin % improved 40 bases points to 10.4% from 10.0% in 2011. The margin % obtained on recruitment activities (stripping out PayQuest umbrella service transactions and 'payroll' deals that we process at low margin because we are providing no recruitment services) increased from increased by 60 basis points from 10.9% to 11.5%.

EBITA

EBITA before non-recurring items and share based payment charge (reconciliation provided in Note 1) decreased by 53% to £1.8m (2011: £3.8m).

The intangible asset amortisation decreased by 26% to £0.5m (2011: £0.7m).

Net finance costs were unchanged from 2011 at £0.3m.

Loss before tax increased to £0.4m (2011: loss of £0.2m).

Tax on profits was £0.3m before non-recurring items (2012: £0.9m).

Non-recurring items

There are three non-recurring items in the 2012 financial statements. These are summarised in the table below and full details are provided in Note 2.

Loss per share and dividend

Basic loss per share was 0.4 pence (2011: loss per share of 3.4 pence). When non-recurring items, amortisation and share based payment charge and the tax in respect of these three items are removed, the basic adjusted earnings per share is 3.5 pence representing a decrease of 56% from 8.0 pence in 2011. See note 4 for details of the calculation.

An interim dividend of 0.5 pence per share (2011: 0.5 pence) was paid on 26 October 2012. A second interim dividend of 2 pence per share (2011: 2 pence per share) has been proposed. The dividend will be paid on 12 April 2013 to all eligible shareholders on the register as at 15 March 2013. The corresponding ex-dividend date will be 13 March 2013.

Balance sheet, cash flow and financing

The Group's net assets decreased by £0.35m to £19.15m at 31 December 2012 (2011: £19.5m).

Operating profit before non-recurring items and tight control of working capital delivered £1.9m of operating cash flow (before tax and interest payments) (2011: £3.4m). The Group paid £1.0m of corporation tax (2011: £0.8m) and £0.3m (2011: £0.3m) of interest during the year. Net capital expenditure was £0.2m (2011: £0.6m) and dividends of £0.8m (2011: £0.8m) were paid.

Net debt decreased from £5.5m at the start of the year to £4.4m at the end of 2012 (2011: increased from £2.7m at the start of the year to £5.5m at the end of the year). The Group continues to finance its activities through the utilization of a confidential trade receivables finance facility. The facility limit is £15.0m and the facility has a six month rolling notice period.

Michael Joyce

Finance Director, 6th March 2013

Consolidated statement of comprehensive income

Consolidated statement of comprehensive income (continued)

Profit / (Loss) and total comprehensive income attributable to:

Loss per share from both total and continuing operations:

2012 2011

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

.

Consolidated balance sheet

The consolidated financial statements were approved by the board on 6th March 2013 and were signed on its behalf by:

M R S Joyce Finance Director

Company Registration No. 04298109

Consolidated statement of changes in equity 

Consolidated statement of cash flows

Notes to the consolidated financial information

1 Revenue and segmental reporting

For management reporting purposes the Group is organised by individual specialist business units. All business units, with the exception of PayQuest Group Limited, provide Contract and Permanent recruitment services. Our UK recruitment businesses have similar economic characteristics and are considered to meet the aggregation criteria of IFRS. They are analysed below with respect to the market segments where they focus their activities - Private Sector Financial Services, Private Sector Non-Financial Services (described as 'Other') and Public Sector focused. PayQuest Group Limited is shown as a separate reportable segment because it does not provide recruitment services. It provides payroll services to contractors.

The information provided below is consistent with the information provided to the Groups chief operating decision maker.

PayQuest Group Limited, our payroll services business, is shown separately because it does not provide recruitment services.

In 2011 our IQ Equity division, which was founded in 2009 to provide start up capital and infrastructure to new specialist IT recruitment businesses, was a separate reportable segment. In 2012 those businesses have been classified within 'Private Other'.

Information regarding segment assets is not provided to the Groups chief operating decision maker. This is because the Group considers net fee income (gross profit) for the purpose of making decisions about allocation of resources.

PayQuest Group Limited, our payroll services business, is shown separately because it does not provide recruitment services.

The Group does not report items below EBITA by segment in its internal management reporting.

There are no external customers who individually represent more than 10% of the entity's external revenues during the year (2011: one client represented £15.8m).

2 Non-recurring items

There are three non-recurring items in the 2012 financial statements.

Restructuring costs

During the year the Group reorganised from a group of affiliated IT recruitment businesses into clearly defined specialist businesses utilising a common methodology, a single operating platform and new IQ branding. This has laid the foundations for scalability in our operations and should provide a platform for organic growth in the future. To enable this to happen we employed a Change Programme Director dedicated exclusively to this project. Her costs and some costs of other individuals periodically seconded to the project have been categorized as restructuring costs. In addition, as part of this exercise, we exited a number of senior people from the Group and their exit costs have also been categorized as restructuring costs. In total, £674k of such costs have been incurred and recognised as a non-recurring item in the 2012 financial statements, the tax credit in respect of these items is £165k.

Impairment of goodwill and intangible assets related to Contract Connections Limited

In 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 shares issued at 63.5 pence per share. In 2011, 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 as at 31 December 2011. As a result of that review, an impairment charge of £2m was recognised in 2011 and treated as a non-recurring item.

A further review of the remaining carrying value of the intangibles and goodwill associated with the business of Contract Connections Limited was carried out by the Directors at 31 December 2012 and as a result of that review the intangible assets and remaining goodwill have been written down to zero carrying value as at 31 December 2012.

Accordingly, impairment charge of £1.6m has been recognized as a non-recurring item in the 2012 financial statements. This comprises impairment of goodwill of £678k and impairment of intangible assets of £938k. A deferred tax liability of £229k has been written back to the consolidated statement of comprehensive income.

Successful conclusion of warranty claim against former shareholders of Contract Connections Limited

Following notification of apparent impropriety and alleged fraud in 2011 (as noted above), the Group commenced a warranty claim against the former shareholders of Contract Connections Limited in December 2011. This claim was successfully concluded in November 2012 when the Group reached an out of court settlement with the vendors for a repayment of consideration in the amount of £1 million cash, which was received in early December 2012. There is no tax payable on this repayment of consideration. This repayment of consideration has been recognised as a non-recurring item in the 2012 financial statements.

3 Income tax expense

4 Loss per share

The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year. 

The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares and the post tax effect of dividends and/or interest, on the assumed conversion of all dilutive options and other dilutive potential ordinary shares. 

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.

5 Cash and cash equivalents

The carrying value of cash and cash equivalents are considered to be a reasonable approximation of fair value.

6 Financial information - statement under s435

The financial information set out in this preliminary announcement does not constitute statutory accounts for the years ended 31 December 2012 or 2011, for the purpose of the Companies Act 2006, but is derived from those accounts. The statutory accounts for 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered following the Company's Annual General Meeting. The Group's Auditor has reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under Section 498(2) or (3) of the Companies Act 2006.