AIM-listed IT recruitment company InterQuest Group has tumbled into the red in the first half after writing off £2.9m associated its recent acquisition of Contract Connections Ltd (CCL), after a major client terminated its relationship with CCL in August, and withheld payment after an alleged fraud within the client’s organisation (see InterQuest hit by alleged client fraud). InterQuest has written off the whole debt, including the post period end element, of which £2m relates to business impairment, and £600k for revenue owed to CCL. For the six month period ended 30 June, InterQuest made a pre-tax loss of £1.7m vs. a profit of £1.1m in H110, although revenue grew in double-digits, up 10% to £61.1m. Net fee income meanwhile, which is essentially gross profit, was up 11% to £7.8m – the net fee margin was stable at 13%.
InterQuest says it has now launched its own ‘independent investigation (using external forensic accountants)’ into the alleged client fraud, and will provide an update in due course. InterQuest has seen its share price slump c19% since the CCL announcement in August, and unfortunately it has taken the gloss off an otherwise good performance from the company.
Across the group, net fee income from private sector markets, particularly banking and finance (which now makes up 39% of group revenue vs. 31% in H110) and retail (which doubled its share of group revenue to 16%) more than offset a 36% fall in public sector net fee income. And its private equity division IQ Equity, which has majority shareholdings in four new specialist businesses, also made its first half year EBIT profit, and this is expected to continue. InterQuest is still bullish about its prospects going forwards. Chairman Gary Ashworth said the general economic outlook has ‘improved slightly’ during 2011 and the second half of the year has begun ‘strongly’, so it is on track to meet its FY expectations. It also grew the number of net fee earners in the business to 170 (14 from CCL), up from 136 last year.
InterQuest is also making its ‘first foray into international markets’ through a move into Asia, where it said the margins tend to be higher than in the UK. During the half, it appointed an experienced MD to run a new office in Singapore, which is due to open in Q4. International and emerging markets are where InterQuest’s larger rivals like SThree (see here) and Hays (see here), are now generating their growth, as opportunities in the UK becoming increasingly hard to come by. This expansion for InterQuest is a sensible move, but its lack of experience outside the UK market means it is not without risk.