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UK – Networkers International’s profits hamstrung by challenging conditions

15 September 2014

International recruitment company Networkers International (NWKI: AIM) reported revenue of £81.1 million for the six months ending 30 June 2014, an increase of +2.1% compared with £79.4 million a year ago.

Gross profit for the period fell by -6.1% to £13.8 million, down from £14.7 million last year. Operating profit for the six months was £2.8 million, a decrease of -16.7% from £3.3 million in H1 2013.

Permanent placements accounted for 28% of total Group net fee income, up from 26% during the same period last year. Contract placement net fee income accounted for 72% in H1 2014, down from 74% of Group last year.

Spencer Manuel, CEO of Networkers International, commented: "As expected, during the first half of 2014 we traded in line with prior period on a constant currency basis. The reported results have been impacted by adverse currency movements for the Group, with much of the Group's international business being conducted in currencies other than sterling, which has strengthened by +9% compared with the corresponding period last year.”

"Trading in all three sectors has shown growth in recent weeks and the business as a whole is up on last year over the past three months, even after taking into account the adverse currency effect. If this recent performance is sustained throughout the year we will be able to close some of the deficit caused by currencies compared to prior year and set us up well for strong growth in 2015 and beyond," he added.

Networkers International’s Telecommunications sector generated 33% of Group revenue, down from 42% during H1 2013. The sector also accounted for 46% of the company’s net fee income, down from 52% last year. The company reported a month-on-month increase in contract fee income since January 2014, as demand from key telecoms clients increased.  

This increase in demand for telecoms workers stemmed from the more developed markets of Europe and USA. Traditionally, the Group specialises in emerging markets where skill shortages have been greatest. However, good progress has been made in broadening Networkers International’s telecoms business into developed countries where investment in the modernisation of telecoms infrastructure, particularly 4G, is now taking place.

The company’s IT sector generated 58% of the Group’s revenue in H1 2014, up from 52% last year. The sector performed in line with prior period with modest growth in permanent placements offsetting a decline in contractor revenue in the company’s banking team. The Group advised that it is now starting to benefit from the continued investment in its Specialist Markets division, particularly in the UK.

Networkers International’s IT sector is primarily based within the UK, with 70% of IT net fee income being derived from UK-based clients. The UK macro-economic environment has been improving throughout 2014 and the company has seen an increase in demand for contractor placements from UK-based clients which, if sustained, will have a positive impact on H2.

The company’s Energy & Engineering sector generated 9% of the company’s total revenue during H1 2014, up from 6% last year. The sector now represents over 16% of the Group's total fee income, up from 6% two year ago. Following the sector’s organic growth, coupled with a recent bolt-on acquisition of a specialist niche staffing business in the oil & gas sector, Networkers International anticipate that the sector will continue to increase its proportion of Group net fee income throughout the current year.

Earlier this month, Networkers International announced that it had acquired contract oil & gas sector recruitment company CAPPO Group. The company currently has offices in London, Qatar, and Houston. 

Geographically, Networkers International’s largest market remains Europe, with revenue growth of +6.9% to £67.3 million, up from £62.9 million during the same period last year. Asia Pacific was the only other region to report year-on-year revenue growth, rising by +3.3% to £2 million from £1.9 million last year. 

The sharpest decline was noted across the Americas, which reported a drop of -24.1% in revenue to £7.7 million, down from £10.1 million a year ago. Revenue from the Middle East & Africa fell by -7.3% to £4.1 million from £4.4 million last year.

Mr Manuel concluded: "Trading in all three sectors has shown growth in recent weeks and the business as a whole is up on last year over the past three months, even after taking into account the adverse currency effect. If this recent performance is sustained throughout the year we will be able to close some of the deficit caused by currencies compared to prior year and set us up well for strong growth in 2015 and beyond."

In trading today, the company’s share price decreased by -13.6% to £0.54, an increase of +37% compared with last year. Based on its current share price, the company has a market value of £45.3 million.