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UK – Interquest revenue up but posts net loss

07 March 2012

The specialist IT recruitment group Interquest (ITQ:LSE) reported on Wednesday that revenues in 2011 were up +8% to £120.9 million from £112.2 million in 2010 but the firm recorded a net income loss of over £1 million.

Audited results for the year ended 31 December 2011 show that gross profit increased +14% from £14.7 million in 2010 to £16.6 million in 2011. This resulted in an improved gross margin which went up to 13.8% in 2011 from 13% in the previous year as the firm derived a larger proportion of its gross profit from permanent recruitment in 2011 (30% compared to 26% in 2010).

However, profit before tax was down and the firm recorded a loss of £0.2 million from a profit of £2.2 million in 2010. Profit after tax in 2011 was also in the minus as the firm made a loss of £1.09 million compared to a profit of £1.8 million in the previous year.

In August last year, InterQuest announced that contracts with the recently acquired Contract Connections Limited had been terminated due to apparent impropriety and alleged fraud within a major client. Following which the Board conducted an impairment review on the carrying value of the goodwill arising on the acquisition of the company, and recognised a £2 million impairment charge. On top of this, a provision of £0.5 million has been made in the financial year, and treated as a non-recurring item, for trade receivables withheld as a result of the alleged fraud.

The firm also said that 22% of the growth in net fee income earned by businesses operating in markets outside the Public Sector has experienced a steady decline in demand due to government cutbacks in expenditure. Public sector revenues went down from £28.0 million in 2010 to £18.9 million in 2011, this represented just 12% of the Group's net fee income in 2011 (18% in 2010).  

IQ Equity “delivered strong growth in 2011” as the firm’s majority-owned business-incubator for recruitment entrepreneurs achieved NFI growth of 53%. Revenues went up to £5.7 million in 2011 from £3.8 million in 2010.

However, the strongest sector was Financial Services and Retail although Financial Services experienced a level of volatility through the year as pressures within the sector ebbed and flowed. Revenues for financial services increased to £43 million in 2011 from £33.2 million in 2010. Retail, however, has seen sustained growth brought on largely by demand for specialist skills in areas such as ecommerce, digital media and analytics.

Permanent recruitment saw net fee income increase +34% to £5 million, from £3.8 million in the previous year. However, 70% of the firm’s income comes from the recurring revenue associated with the Contract recruitment business.

In the year, InterQuest added 261 new customer accounts from which the firm derived £3 million of incremental net fee income in 2011, 18% of the total.  The Group's Solutions business, which provides customers with a single process to source and pay for a selection of specialist recruitment services from niche businesses within InterQuest, also delivered growth, adding two new mid-sized RPO contracts to their customer base.

An operational highlight emphasised in today’s report include the fact that the firm has expanded globally in 2011 by opening an office in Singapore.

Gary Ashworth, Executive Chairman commented on the results, saying "The Group commenced its plan for accelerated growth in 2011, with the appointment of Mark Braund as CEO in April 2011. This has led to investment in overseas markets and organic growth in both contract margin and permanent placement levels. Despite the sluggish nature of UK markets in 2011, I am delighted with the progress which has been achieved in the year.”

He also remained positive for 2012 and said, “With market conditions and margins in the UK now improving slightly, plus the operational contribution we expect from the already profitable IQ Equity businesses and our investment in Asia, I am confident that we will see Net Fee Income grow respectably in 2012, enabling increased investment in the business both in the UK and internationally."

InterQuest is a group of specialist recruitment businesses, placing both Contract and Permanent staff into niche disciplines within the information & communications technology sector (ICT).

In early trading this morning, the company’s share price went up +4.59% at £57.00, down -12.31% from a year ago but +23.91% above the 52-week low of £46.00 set on 12 August 2011.

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