Interim Results

15th Sep 2009 07:00



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 2009. 

Financial highlights

Revenue down 8% to £49,211,000 (2008: £53,445,000)

Gross profit down 24% to £6,181,000 (2008: £8,140,000)

EBITA (before IFRS 2 and amortisation charges) down 46% to £1,578,000 (2008: £2,938,000)

Profit before taxation down 55% to £913,000 (2008: £2,009,000)

Basic adjusted earnings per share down 42% to 4.0 pence (2008: 6.9 pence)

Basic earnings per share down 58% to 2.1 pence (2008: 5.0 pence)

Increased net cash from operating activities £4.6m (2008: £2.9m) 

Net debt reduced to £1.4m (2008: £6.6m)

Maiden dividend of 1p per share paid to shareholders in June 2009

Operational highlights

Resilience in contract business

Strong growth in public sector 

Investment in IQ Equity division to support the launch of 4 specialist businesses

Gary Ashworth, Chairman of InterQuest, commented, "Our specialist, niche focused business model and our bias towards contract recruitment has insulated us from the extremes of the current economic downturn. We remain a profitable organisation and have utilised our increased cash flow during the first half of the year to reduce our debt substantially and to invest for the future. Looking beyond the current market conditions to a potential upturn, we have maintained a robust and scalable platform to support renewed growth in our core businesses and we have sown the seeds for additional organic growth in the new operations formed within IQ Equity. We therefore face the future with confidence, well-placed to meet the challenges it will bring."

For further information please contact:

InterQuest Group plc	Cenkos Securities plc	ICIS
020 7025 0100	020 7397 8900	020 7651 8688
Gary Ashworth, Executive Chairman	Ivonne Cantu	Caroline Evans-Jones
Michael Joyce, Finance Director	Camilla Hume	Fiona Conroy

About InterQuest

The InterQuest Group is a specialist IT recruitment Group providing contract and permanent recruitment services within niche disciplines in the UK and Europe. The Group comprises seven separately branded specialist divisions covering a broad range of skill sets and industries including Public Sector, SAP, Oracle, CRM Testing, Banking, Insurance, Retailing, Pharmaceuticals, Media, Analytics, Infrastructure and Communications plus majority shareholdings in four further specialist businesses within the IQ Equity division.

Chairman and Chief Executive's statement:

The Group has returned a solid set of financial results despite the extremely challenging market conditions that have prevailed during the first half of 2009.

Resilient business model

Our specialist business model and our bias towards contract recruitment has insulated us from the extremes of the current economic downturn. Revenues for the period were 8% below the same period last year although profits were affected more significantly reflecting the operational leverage in the business from which we will benefit through the recovery. The resilience of our contract business and the weakness in permanent activity has seen the bias towards contract recruitment within our businesses move from circa 65:35 in the first half of 2008 to circa 80:20 in the first half of 2009. In absolute terms, GP from contract recruitment is down 7% from the first half of 2008 and permanent fees are reduced by 58%. 

We have adapted our business quickly and efficiently as market conditions have changed without sacrificing our plans for the future. On a like-for-like basis, excluding non-cash amortisation and share based payment charge, we have reduced our operating costs in the first half of 2009 by 11.5% from the first half of 2008. At the same time we have started to invest in the future and written off some of the start up costs from our first IQ Equity venture - Lanborne Consulting. 

None of the restructuring costs or start up losses have been treated as exceptional and we have maintained profitability throughout these difficult times. We believe that this is testament to the resilience of our specialist, niche focused business model and our bias towards contract recruitment. In addition, having diverse specialisms within our portfolio of businesses has proven an effective defence against the worst impact of the downturn. For example, our public sector contract business has grown strongly to mitigate the impact of the significant decline in permanent revenue.

Strengthened Balance Sheet

The Group's balance sheet has strengthened significantly in this reporting period. We have generated £4.6m of operating cashflow and utilised this to pay our maiden dividend of 1 pence per share in June and to reduce our net debt to £1.4m at 30 June from £5.5m at the start of the year. 

As of the date of this report there is no deferred consideration outstanding on any of our acquisitions. We booked a provision of £917k in the Group balance sheet at 31 December 2008 but, in light of reduced profitability, we revised this downwards to £200k at 30 June 2009 and paid that amount in July. 

We have £14m of debt facilities in place at competitive rates and remain alert to potential acquisition opportunities should they arise.

Significant progress with IQ Equity

As we noted in our full year results announcement in March, we launched IQ Equity in late 2008. The aim of this new venture is to provide financial backing to recruitment professionals looking to start their own recruitment business together with access to our Group training, financing and infrastructure. Significant progress has been made during 2009 with the launch of Lanborne Consulting in April followed by two other deals since the end of this reporting period, Lighthouse Testing in July and Sapian Solutions in August. 

In addition to this, on 5 August the Group invested £200k for a 50.1% equity stake in Korus Recruitment Group. Korus is the parent company for a Group of start-up, specialist IT recruitment businesses. So far two have been established in Chester and Haywards Heath and are trading in line with expectations.

Outlook

The general economic outlook remains uncertain and trading during the summer months has been at similar levels to earlier in the year. We have taken speedy and decisive action during 2009 and as a result our businesses are now in the best shape that they can be to face whatever market conditions prevail in the short and medium term.

Looking beyond that to a potential upturn we have maintained a robust and scalable platform to support renewed growth in our core businesses and we have sown the seeds for additional organic growth in the new operations formed within IQ Equity.

Our balance sheet has strengthened significantly as a result of robust operating cashflows and we face the future confidently placed to meet the challenges it will bring.

Unaudited condensed consolidated interim statement of comprehensive income 

		6 months to  30 June 2009	6 months to  30 June  2008	Year to  31 December  2008
	Note	£'000	£'000	£'000
Revenue		49,211	53,445	105,525
Cost of sales		(43,030)	(45,305)	(90,201)
Gross profit		6,181	8,140	15,324
Amortisation	6	(501)	(501)	(1,011)
Other administration costs		(4,700)	(5,285)	(10,036)
Total administration expenses		(5,201)	(5,786)	(11,047)
Operating profit		980	2,354	4,277
Finance costs		(67)	(345)	(551)
Profit before tax		913	2,009	3,726
Income tax expense	4	(283)	(500)	(990)
Profit for the period		630	1,509	2,736
Deferred tax on share options		-	(192)	(191)
Other comprehensive income		-	(192)	(191)
Total comprehensive income for the period		630	1,317	2,545
Earnings per share from both total and continuing operations:
		Pence	Pence	Pence
Basic earnings per share	5	2.1	5.0	9.0
Diluted earnings per share	5	2.0	4.6	8.5

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

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

Unaudited condensed consolidated statement of financial position

		30 June 2009	30 June 2008	31 December  2008
	Note	£'000	£'000	£'000
ASSETS
Non-current assets
Property, plant and equipment		325	426	393
Goodwill	6	13,890	15,255	14,607
Other intangible assets	6	2,380	3,391	2,881
Total non-current assets		16,595	19,072	17,881
Current assets
Trade and other receivables		15,596	19,549	17,018
Cash and cash equivalents	7	402	148	11
Total current assets		15,998	19,697	17,029
Total assets		32,593	38,769	34,910
LIABILITIES
Current liabilities
Trade and other payables		(9,828)	(10,832)	(8,412)
Financial liabilities - borrowings		(1,757)	(6,783)	(5,544)
Current tax payable		(1,220)	(873)	(730)
Deferred consideration		(200)	(625)	(717)
Total current liabilities		(13,005)	(19,113)	(15,403)
Non-current liabilities
Deferred consideration		-	(1,495)	(200)
Deferred tax liability		(534)	(784)	(674)
Total non-current liabilities		(534)	(2,279)	(874)
Total liabilities		(13,539)	(21,392)	(16,277)
Net assets		19,054	17,377	18,633
EQUITY
Capital and reserves attributable to the Company's equity holders:
Share capital		306	305	306
Share premium account		8,479	8,479	8,479
Retained earnings		9,785	8,233	9,461
Share based payment reserve		484	360	387
Total equity		19,054	17,377	18,633

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

Unaudited condensed consolidated interim statement of changes in equity

	Share  capital	Share  premium  account	Retained earnings	Share based payment reserve	Total equity
	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2008	301	8,344	6,916	277	15,838
Deferred tax on employee share options	-	-	(192)	-	(192)
Profit for the 6 months to 30 June 2008	-	-	1,509	-	1,509
Total comprehensive income for the period	-	-	1,317	-	1,317
Movement in share based payment reserve	-	-	-	83	83
Issue of share capital	4	135	-	-	139
Balance at 30 June 2008	305	8,479	8,233	360	17,377
Deferred tax on employee share options	-	-	1	-	1
Profit for the 6 months to 31 December 2008	-	-	1,227	-	1,227
Total comprehensive income for the period	-	-	1,228	-	1,228
Movement in share based payment reserve	-	-	-	27	27
Issue of share capital	1	-	-	-	1
Balance at 31 December 2008	306	8,479	9,461	387	18,633
Profit for the 6 months to 30 June 2009	-	-	630	-	630
Total comprehensive income for the period	-	-	630	-	630
Movement in share based  payment reserve	-	-	-	97	97
Dividends paid	-	-	(306)	-	(306)
Balance at 30 June 2009	306	8,479	9,785	484	19,054

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

Unaudited condensed consolidated statement of cash flows

		6 months to  30 June 2009	6 months to  30 June 2008	Year to  31 December  2008
	Note	£'000	£'000	£'000
Cash flows from operating activities
Profit after taxation		630	1,509	2,736
Adjustments for:
Depreciation		86	99	239
Share based payment charge		97	83	110
Loss/(profit) on sale of assets		2	12	(1)
Interest charge		67	345	551
Amortisation		501	501	1,011
Income tax expense		283	500	990
Decrease/(increase) in trade and other receivables		1,422	(888)	1,643
Increase/(decrease) in trade and other payables		1,416	1,446	(977)
Cash generated from operations		4,504	3,607	6,302
Income taxes received/(paid)		67	(690)	(1,436)
Net cash from operating activities		4,571	2,917	4,866
Cash flows from investing activities
Purchase of property, plant and equipment		(20)	(99)	(171)
Sale of tangible fixed assets		-	44	31
Acquisition of subsidiaries net of cash acquired		-	-	(2)
Payment of deferred consideration		-	(55)	(610)
Net cash used in investing activities		(20)	(110)	(752)
Cash flows from financing activities
Proceeds from issue of share capital		-	139	140
Net decrease in trade receivables finance facility		(3,620)	(1,593)	(2,999)
Interest paid		(67)	(345)	(551)
Dividends paid		(306)	-	-
Net cash used in financing activities		(3,993)	(1,799)	(3,410)
Net increase in cash and cash equivalents		558	1,008	704
Cash and cash equivalents at beginning of period		(156)	(860)	(860)
Cash and cash equivalents at end of period	7	402	148	(156)

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") principal activity is the provision of IT recruitment solutions. The Group is one of the UK's leading staffing businesses in the information and communications technology sector. The Group comprises seven specialist niche businesses currently operating from five UK locations, combined with a centralised finance and administration function.

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

The unaudited condensed consolidated interim report has been approved for issue by the Board of Directors on 14 September 2009.

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 2008 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 237(2) or Section 237(3) of the Companies Act 1985. 

2 Basis of preparation

The unaudited condensed consolidated interim report is for the six months ended 30 June 2009 and has been prepared in accordance with the accounting policies as set out in the annual financial statements for the year ended 31 December 2008. The unaudited condensed consolidated interim report should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2008, 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 2008 except for the adoption of IAS 1 "Presentation of Financial Statements" (Revised 2007).

The adoption of IAS 1 (Revised 2007) does not affect the financial position or profits of the Group, but gives rise to additional disclosures. The measurement and recognition of the Group's assets, liabilities, income and expenses is unchanged, however, some items that were recognised directly in equity are now recognised in other comprehensive income, for example deferred tax arising in share options. IAS 1 (Revised 2007) affects the presentation of owner changes in equity and introduces a 'Statement of Comprehensive Income'.

4 Income Tax expense 

	6 months to  30 June 2009	6 months to 30 June  2008	Year to  31 December  2008
	£'000	£'000	£'000
Current tax
Corporation tax on profits for the period	423	675	1,323
Adjustment in respect of prior periods	-	-	(48)
Total current tax	423	675	1,275
Deferred tax
Accelerated capital allowance	-	-	5
Charge on share based payments	-	(25)	80
Other temporary differences	-	-	(9)
Intangible asset temporary differences	(140)	(150)	(283)
Effect of change in tax rates	-	-	(78)
Total deferred tax	(140)	(175)	(285)
Total tax charge	283	500	990

 

5 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 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.

	6 months ended 30 June 2009	6 months ended 30  June 2008	Year ended 31 December 2008
	£'000	£'000	£'000
Profit for the period
Basic earnings	630	1,509	2,736
Adjustments to basic earnings
Intangible assets amortisation	501	501	1,011
Share based payment charge	97	83	110
Adjusted earnings	1,228	2,093	3,857
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share	30,578,076	30,298,818	30,438,663
Weighted average number of ordinary shares for the purposes of diluted earnings per share	31,989,460	32,600,779	32,303,146
Earnings per share	Pence	Pence	Pence
Basic earnings per share	2.1	5.0	9.0
Diluted earnings per share	2.0	4.6	8.5
Adjusted earnings per share
Basic earnings per share	4.0	6.9	12.7
Diluted earnings per share	3.8	6.4	12.0

6 Goodwill and other intangible assets

The following table show the significant movements in intangible assets.

	Goodwill	Customer  relationships	Total
	£'000	£'000	£'000
Carrying amount at 1 January 2008	15,183	3,892	19,075
Revision to deferred consideration	(632)	-	(632)
Fair value adjustment	56	-	56
Amortisation	-	(1,011)	(1,011)
Net book amount at 1 January 2009	14,607	2,881	17,488
Revision to deferred consideration	(717)	-	(717)
Amortisation	-	(501)	(501)
Net book amount at 30 June 2009	13,890	2,380	16,270
Cost at 30 June 2009	13,890	5,055	18,945
Accumulated amortisation	-	(2,675)	(2,675)
Net book amount at 30 June 2009	13,890	2,380	16,270

The Group has used the income approach to measure the forecasted economic benefit streams of the acquired businesses key customer relationships. These benefit streams have been discounted to a present value with an appropriate risk adjusted weighted average cost of capital. Risk adjusted includes general market rates of return at the valuation date, business risks associated with the industry and other risks specific to the assets being valued. Customer relationships are being amortised over a period of five years.

 7 Cash and cash equivalents

	30 June  2009	30 June  2008	31 December  2008
	£'000	£'000	£'000
Cash and cash equivalents include the following for the purposes of the cash flow statement:
Cash at bank and in hand	651	148	11
Bank overdrafts	(249)	-	(167)
Total	402	148	(156)

8 Events after the balance sheet date

On 9 July 2009 the Group signed heads of terms to take a 60 percent equity stake in Lighthouse Testing Limited ("Lighthouse"). Lighthouse is a newly formed IT testing consultancy business based in the Group's central London office. 

On 5 August 2009 the Group invested £200,000 for a 50.1% controlling interest in Korus Recruitment Group Limited ("Korus"). Korus commenced trading on 1 January 2009 and is the parent company of a Group of start-up, specialist IT recruitment companies.

On 18 August 2009 the Group entered into a joint venture; Sapian-Solutions Limited ("Sapian-Solutions"). Sapian Solutions will provide world class niche recruitment services to the SAP Market. Under the terms of the joint venture, InterQuest will own a majority stake.

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