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 2014.

Financial highlights

§ Adjusted EBITA* up 85% to £2.4m (2013: £1.3m)

§ Adjusted PBT* up 82% to £2.2m (2013: £1.2m)

§ Net Fee Income ("NFI") up 34% to £11.4m (2013: £8.5m)

§ Improved EBITA / NFI ratio of 21.1% up 580-bps from 15.3% in 2013

§ Gross margin % improved by 50-bps from 15.1% to 15.6%

§ Improved contract recruitment margins up 30-bps from 12.1% in the first half of 2013 to 12.4% in the first half of 2014

§ Permanent recruitment fees 29% higher at £3.7m (2013: £2.9m)

§ Revenue up 30% to £73.0m (2013: £56.2m)

§ Diluted adjusted earnings per share up 84% to 4.6 pence (2013: 2.5 pence)

§ Basic earnings per share up 10% to 3.2 pence (2013: 2.9 pence)

§ Basic adjusted earnings per share up 81% to 4.9 pence (2013: 2.7 pence)

§ Net cash generated from operating activities £3.4m (2013: £0.5m cash used)

§ Net debt £7.1m (2013: £5.7m)

§ Interim dividend of 0.5pence per share to be paid on 17th October 2014

*Adjusted for share based payment charge, amortisation, exceptional items and one-off profit on sale of PayQuest Group Limited in 2013.

Operational highlights

§ Strong performance from ECOM (acquired in 2013); ahead of expectations and successful integration completed;

§ Organic growth and improved profitability across the Group as we continue to deliver on the focused strategy implemented at the beginning of 2013;

§ Continued improvement in contract recruitment gross margins demonstrating the clear benefits of our focus on niche specialist recruitment;

§ Contract book has grown organically by 12.7% between January 2014 and June 2014 (comparing £'s per day net fee income in June to January); and

§ Net operating margin (adjusted EBITA/NFI) improved by 580-bps from 15.3% to 21.1%;

Chief Executive Officer, Mark Braund, commented: "We are delighted with the strong progress made during the first half of 2014, building on the foundations put in place at InterQuest over the last two years. Our focus on specialist niche recruitment services providing some of the market's most in-demand skill sets is delivering significant benefits to the Group and its relationship with its clients. The Group operates at the leading edge of the analytics and digital technology revolution with momentum continuing to build in the second half of 2014. Our focus on specialist disciplines in key niche markets driven by the emerging importance of big data underpins our success, we continue to invest in these areas and anticipate this will deliver further growth during the remainder of 2014 and into 2015. Recently acquired ECOM, the UK's leading digital technology recruitment company, has made an outstanding contribution and enhanced the opportunity for cross-selling throughout the Group. Our results and market position are made possible by the tremendous people that make up the InterQuest Group; to them, on behalf of the Board we say a heartfelt 'thank you'".

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Chief Executive's Review

Our strategy is to provide employers with the fastest access to the best talent, focusing on specialist disciplines in key niche markets driven by the emerging importance of big data. We have a high-touch approach to developing talent networks in high-demand, high-growth markets; this is a valuable asset that our clients are keen to access to fill critical roles in developing their big data projects.

The acquisition by the Group of ECOM Recruitment Limited, the UK's leading digital technology recruitment company, has helped expand and accelerate our penetration of this rapidly expanding market. ECOM has enhanced our stable of specialist recruitment practices focused on Analytics, Business Intelligence, Cyber Security, Internet of Things, Telecommunications, Risk and Compliance, which provide access to talent in some of the most critical areas of demand in the modern economy.

As our strategy gains momentum' new markets are emerging that provide fertile ground for further investment to maintain growth in value and margins. As the Group matures, the opportunity for our customers to make use of each of the specialist recruitment practices within the Group through a single account management structure is also growing rapidly. Consequently, we are delivering material improvement in our customer retention and cross-selling performance, which in turn leads to increases in average customer spend and our share of wallet.

We recognise that today's niche skill sets will become commoditised as more people respond to demand, develop these skills and enter the job market. To address this we have put in place a business model that enables us to move the servicing of specific skill sets though the various stages of demand to what becomes, in relative terms, a low cost operating model thereby leveraging the asset that is our talent network on a sustainable long-term basis.

It is, however, our continued strength in developing specialist niche markets that drives growth and improvements in profitability.

Operational mix remains weighted towards contract recruitment

We have seen strong performance in both our contract and permanent recruitment business in the first half of 2014. As a result, the operational mix of our business between contract and permanent recruitment activities has remained fairly constant at one third permanent recruitment; two thirds contract recruitment. This provides a robust and resilient business mix.

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. As a result:

Ø the average margin derived from contract recruitment activities (excluding payroll services) has increased to 12.4% in the first half of 2014 from 12.1% in the first half of 2013, and from 11.5% in the first half of 2012;

Ø the percentage of our contract NFI derived from what we term "professional" roles has increased from 61% in June 2013 to 65% in June 2014. We define "professional" roles as those with gross margin % greater than 12%. 

Greater efficiency and improved profitability

We are pleased to report a significant increase in profitability in this reporting period as the Group benefits from the operational leverage inherent in the business:

Ø Adjusted EBITA* increased by 85% to £2.4m;

Ø Adjusted PBT* increased by 82% to £2.2m; and

Ø Net operating margin (adjusted EBITA/NFI) improved by 580-bps from 15.3% to 21.1%;

*Adjusted for share based payment charge, amortisation, exceptional items and one-off profit on sale of PayQuest Group Limited in 2013.

Cash flow and Funding

The Group had a net cash inflow from operations of £3.4m 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, finance costs of £0.2m and the Group paid £0.5m of deferred consideration to the former shareholders of ECOM Recruitment Limited

Net debt is £7.1m at 30 June 2014 compared to £9.0m at 31 December 2013.

We are declaring an interim dividend of 0.5 pence and this will be paid on 17th October 2014 to shareholders on the register on 19th September 2014. The ex-dividend date is 17th September 2014.

Looking forward

We enter the second half of 2014 with a contract book that has grown organically by 12.7% in the first half of the year and with positive momentum in our permanent recruitment business. Consequently, we are confident of further success in the second half of the year and beyond. 

Thank you

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

Consequently, we would like to thank all of our 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

9 September 2014

Unaudited 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

The InterQuest Group is a group of specialist recruitment businesses providing contract and permanent recruitment services within niche disciplines in the analytics, financial and technology market sectors in the UK and Europe. The Group's specialist divisions cover a broad range of skill sets and industries including Public Sector, SAP, Oracle, CRM Testing, Banking, Insurance, Retailing, Media, Analytics, Infrastructure and Communications. The Group operates from ten United Kingdom locations and has a centralised finance and administration function.

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 9 September 2014.

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 2013 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 2014 and has been prepared in accordance with the accounting policies as set out in the annual financial statements for the year ended 31 December 2013. The unaudited condensed consolidated interim report should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2013, 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 2013. 

4 Revenue and segmental reporting

For management reporting purposes the Group is organised into the following six divisions:-

1. Niche - comprising specialist recruitment practices focused on Analytics, Business Intelligence, Cyber Security, Internet of Things, Telecommunications, Risk and Compliance which provide access to talent in some of the most critical areas of demand in the modern economy;

2. ECOM Recruitment Limited - the UK's leading recruiter in the digital market space which the Group acquired in November 2013;

3. Enterprise - comprising legacy client relationships with significant customers in the financial services and retail sectors;

4. Public sector;

5. Mint Recruitment Solutions - a candidate centric "spot" business providing the Group with an alternative route to market; and

6. Other.

All business units provide contract and permanent recruitment services and have similar economic characteristics and are considered to meet the aggregation criteria of IFRS.

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) and profitability for the purpose of making decisions about allocation of resources.

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

¹ ECOM Recruitment Limited was acquired on 26 November 2013.

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

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

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

5 Income tax expense 

6 Earnings 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 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.