Half Yearly Report

InterQuest Group plc

("InterQuest" or "the Group")

Interim Results

InterQuest Group plc (AIM: ITQ), the specialist IT Recruitment Group, is pleased to announce its unaudited interim results for the six months ended 30 June 2013.

Financial highlights

- Revenue up 0.7% to £56,231k (2012: £55,809k)

- Net Fee Income ("NFI") up 2.3% to £8,483k (2012: £8,289k)

- Gross margin % improved from 14.9% to 15.1%

- Permanent recruitment fees 4.5% higher at £2,872k (2012: £2,748k)

- Improvement in contract recruitment margins from 11.5% in the first half of 2012 to 12.1% in the first half of 2013

- Adjusted EBITA* up 21% to £1,302k (2012: £1,072k)

- Adjusted PBT* up 29% to £1,205k (2012: £932k)

- Diluted adjusted earnings per share up 50% to 3.3 pence (2012: 2.2 pence)

- Basic earnings per share up 142% to 2.9 pence (2012: 1.2 pence)

- Net cash used in operating activities £0.5m (2012: £0.2m)

- Net debt £5.7m (2012: £6.4m)

- Interim dividend of 0.5 pence to be paid on 25 October 2013

*Adjusted for share based payment charge, exceptional items and one off profit on sale of PayQuest Group Limited.

Operational highlights

- Improved profitability as we start to deliver on the new strategy that was implemented in 2012;

- Continued improvement in contract recruitment gross margins as we focus on niche specialist recruitment;

- Net operating margin (adjusted EBITA/NFI) improved by 2.4% from 12.9% to 15.3%;

- Mint branded business turned around and returned to profitability;

- Singapore operation which opened in late 2011 now well established; and

- Disposal of umbrella business, PayQuest Group Limited, which was started in 2010 for £315k.

Gary Ashworth commented "I am delighted to see evidence that the company's re-focus on niche sectors within the Group's core technology market expertise has delivered increased revenues and net fee income together with continued improvement in contract recruitment margins and average placement fees. These improvements, together with increased efficiencies in all of our business processes and systems which were consolidated and streamlined last year, have combined to deliver better results in the first half of 2013 and we look forward to building on this improvement during the remainder of the year and beyond."

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About InterQuest

The InterQuest Group is a specialist technology recruitment Group providing contract and permanent recruitment services within niche disciplines in the UK and Southeast Asia. The Group comprises specialist divisions covering a range of technology and analytical skill sets including Analytics, Digital, ERP (SAP, Oracle), Enterprise Systems Management (Infrastructure, ITSM, ITAM), Mobile, Quality Assurance & Testing and Telecommunications. The Group operates across multiple industries with a significant presence and expertise in Financial Markets (Banking & Insurance), Public Sector, Not-for-Profit and Retail.

Chief Executive's Review

Introduction

In the first half of 2013, we have started to deliver improved results from the implementation of our new strategy and reorganisation that were completed in the second half of 2012.

In 2012 we successfully reorganised ourselves from a group of affiliated IT recruitment businesses into one with clearly defined specialist businesses utilising a common methodology, a single operating platform and new IQ branding. We also reorganised our management team and Mint branded business.

These initiatives have given us a platform for scalability, organic growth and improved profitability which has started to deliver improved financial results in the first half of 2013.

Operations

Operational mix remains weighted towards contract recruitment

The operational mix of our business between contract and permanent recruitment activities remained constant at one third permanent recruitment; two thirds contract recruitment.

Move to higher margins

We continue to see the quality and profile of our business improve as a result of our specialist brands focusing on driving value and filling the most difficult roles with the best talent available in the market. Modest gains in NFI somewhat mask the significance of the changes that helped to bring about this result.

As a result of this strategy:

- the average margin derived from contract recruitment activities (excluding payroll services) has increased to 12.1% in the first half of 2013 from 11.5% in the first half of 2012, and from 10.5% in the first half of 2011;

- the percentage of our contract NFI derived from what we term "professional" roles has increased during the period from 54% in January and February to 61% in June. We define "professional" roles as those with gross margin % greater than 12%; and

- the average fee for permanent recruitment services increased by 23% to £7,769 in the first half of 2013 from £6,328 in the first half of 2012.

An improving customer experience

No part of our organisation has remained untouched by the relentless effort we have made to add value to our candidates and customers at the same time as outperforming our traditional competitors.

Stronger account management and expert delivery teams have succeeded in delivering recruitment services with greater efficiency and effectiveness improving customer retention and profitability.

The unified branding of the IQ family of specialist businesses is gaining recognition as a trusted source of specialist knowledge for our candidates and clients and the consolidation of our recruitment processes and systems (completed last year) is improving service to both.

Increased and improved training programmes for staff at all levels of our organisation continues to underpin our ethos of striving to offer the best experience possible to customers and candidates.

Disposal of umbrella business on 1 May 2013

PayQuest Group Limited ("PayQuest") was established in 2010 as a new business within the Group. PayQuest provides payroll services to information technology consultants working on contract assignments. This is not a core activity for the Group as we seek to focus our efforts more narrowly on high value niche recruitment.

Consequently, we disposed of the business to a specialist payroll services provider on 1 May 2013 for £315k comprising £300k for the business and £15k for the net assets in the completion balance sheet. After associated fees and bonuses the Group has recorded a one-off profit of £249k in this reporting period.

Greater efficiency and improved profitability

We are pleased to report a significant increase in profitability in this reporting period.

- Adjusted EBITA* increased by 21% to £1,302k;

- Adjusted PBT* increased by 29% to £1,205k;

- Net operating margin (adjusted EBITA/NFI) improved by 2.4% from 12.9% to 15.3%;

*Adjusted for share based payment charge, exceptional items and one off profit on sale of PayQuest Group Limited.

Several factors have contributed to this improvement:

- Modest growth in NFI and revenue in an improving but still fragile market during the period;

- Stronger and more efficient account management and delivery to customers;

- Consolidation and improvement of our business process and support systems including back office; and

- The restructuring of our Mint branded business at the start of the year has seen it return to sustainable profitability in 2013.

Cash flow and Funding

The Group had a net cash outflow from operations of £0.5m in the first half of the year.

There were cash outflows during the period in respect of dividends of £0.7m, capital expenditure of £0.1m and finance costs of £0.1m.

The company had net cash outflow of £0.1k from investment activities and net debt is £5.7m at 30 June 2013 compared to £6.4m at 30 June 2012.

We are declaring an interim dividend of 0.5 pence in line with our progressive dividend policy and this will be paid on 25 October 2013 to shareholders on the register on 20 September 2013. The ex-dividend date is 18 September 2012.

Looking forward

Our markets and the wider UK economy have started improving at last in the first half of 2013.

However, challenges remain, not least margin compression in key accounts with large clients, which to some extent mask the gains that we have made elsewhere as we move our business more and more towards niche segments and higher margins.

In our view, margin is a measure of value and we are very pleased that this has continued to improve for the Group as a whole for this fourth reporting period since we began to reshape our business.

Looking forward, our strategy is to continue to specialise, developing unique networks and talent pools of passive candidates and targeting critical roles that are difficult to fill thereby strengthening our value proposition in the market.

This strategy and the steps we took in 2012 to unify our brands in one IQ family and to consolidate and streamline our processes and systems should continue to deliver improved profitability in future reporting periods.

The vast majority of our business (over 90%) is in the United Kingdom therefore a continued improvement in UK market conditions - should that happen - would be a further catalyst.

Thank you

We remain a people business and rely very much on the development and quality of our own talent to succeed.

Consequently, I would like to thank all of my colleagues at InterQuest Group for their continued passion and commitment to deliver the very best service for our candidates and customers.

Mark Braund

Chief Executive Officer

11 September 2013Unaudited condensed consolidated interim statement of comprehensive income

All results for the Group are derived from continuing operations in the current period.

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.

Notes to the unaudited condensed consolidated interim report

1 Nature of operations and general information

InterQuest Group plc and its subsidiaries("the Group") is a specialist technology recruitment Group providing contract and permanent recruitment services within niche disciplines in the UK and Southeast Asia. The Group comprises specialist divisions covering a range of technology and analytical skill sets including Analytics, Digital, ERP (SAP, Oracle) Enterprise Systems Management (Infrastructure, ITSM, ITAM), Mobile, Quality Assurance & Testing and Telecommunications. The Group operates across multiple industries with a significant presence and expertise in Financial Markets (Banking & Insurance), Public Sector, Not-for-Profit and Retail.

The Group's unaudited condensed consolidated interim report is presented in Pounds Sterling (£'000).

The unaudited condensed consolidated interim report has been approved for issue by the Board of Directors on 11 September 2013.

The financial information set out in this interim report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 31 December 2012 have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain a statement under Section 498 of the Companies Act 2006.

2 Basis of preparation

The unaudited condensed consolidated interim report is for the six months ended 30 June 2013 and has been prepared in accordance with the accounting policies as set out in the annual financial statements for the year ended 31 December 2012. The unaudited condensed consolidated interim report should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2012, which have been prepared in accordance with IFRSs as adopted by the European Union (EU).

The accounting policies have been applied consistently throughout the Group for the purposes of preparation of the unaudited condensed consolidated interim report. 

3 Summary of significant accounting policies

The same accounting policies, presentation and methods of computation are followed in this unaudited condensed consolidated interim report as were applied in the preparation of the Group's annual financial statements for the year ended 31 December 2012.

4 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 which was sold by the Group on 1 May 2013, 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'), Public Sector focused and International. PayQuest Group Limited is shown as a separate reportable segment because it does not provide recruitment services. It provides payroll services to contractors.

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 and 2013 those businesses have been classified within 'Private Other'.

Information regarding segment assets is not provided to the Group's 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.

¹ PayQuest Group Limited, our payroll services business, is shown separately because it does not provide recruitment services. This business was sold on 1 May 2013.

2 Our International segment comprises our Singapore office opened in late 2011 and an International desk based in the United Kingdom.

There are no external customers who individually represent more than 10% of the entity's external revenues during the period.

¹ PayQuest Group Limited, our payroll services business, is shown separately because it does not provide recruitment services. This business was sold on 1 May 2013.

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

5 Income tax expense

6 Earnings/(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 period/year.

The calculation of diluted earnings per share is based on the basic earnings/(loss) 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.

7 Disposal of subsidiary

On 1 May 2013 the group disposed of its interest in PayQuest Group Limited.

The net assets of PayQuest Group Limited at the date of disposal were as follows:

Reconciliation of profit on disposal:

Gain on disposal 300

Less costs incurred (51)

There were no disposals of subsidiaries made in 2012.

The impact of PayQuest Group Limited on the group's results in the current and prior periods is disclosed in note 4. The impact of discontinued operations within the unaudited condensed consolidated interim statement of comprehensive income has not been disclosed on the basis that the Director's deem it to be immaterial.