NETWORKERS INTERNATIONAL PLC (AIM: NWKI) UNAUDITED INTERIM RESULTS FOR THE 6 MONTH PERIOD TO 30 JUNE 2013

Transcription

1 19 September 2013 NETWORKERS INTERNATIONAL PLC (AIM: NWKI) UNAUDITED INTERIM RESULTS FOR THE 6 MONTH PERIOD TO 30 JUNE 2013 The Board of Networkers International Plc ( Networkers or the Group ), the AIM-listed international recruitment company, is pleased to announce interim results for the six months ended 30 June Financial Highlights Adjusted* pre-tax profits for the period reduced by 3.2% to 3.34m (2012: 3.45m) against strong H1 comparatives; Pre-tax profits of 3.11m (2012: 3.29m); Adjusted earnings per share (see note 3) up 3.8% to 2.43p (2012: 2.34p); Gross profit (net fee income) down by 7.7% to 14.67m (2012: 15.89m); Permanent placements represent 25.6% (2012: 20.0%) of net fee income and contract placements 74.4% (2012: 80.0%); Favourable change in sales mix has resulted in gross profit margins increasing to 18.5% (2012: 17.5%); Strong balance sheet with net assets of 20.7m and net current assets of 15.1m; Net cash inflow from operating activities of 2.7m (2012: 4.1m) Net debt relating entirely to drawdown on invoice discounting for working capital purposes, reduced to 5.9m from 6.9m at the start of the year (June 2012: 5.9m). This is after making own share purchases of 0.33m, acquiring shares of minority interests of 0.31m and making dividend payments of 0.54m; and Increase of 16.7% in the interim dividend resulting in an interim dividend of 0.70p per share totalling 0.58m (2012: 0.60p per share totalling 0.53m). Operational Highlights Share of net fee income derived from markets outside of the UK marginally reduced to 70% (2012: 72%); Overall group headcount has remained broadly unchanged from the corresponding period last year, with the numbers of staff located in our international offices increasing to 45% (June 2012: 42%); Successful expansion of Energy & Engineering divisions both within the UK and into the Group s International offices resulting in its net fee income increasing to 11% (2012: 6%) of the Group s total; and Successful opening of Singapore and Brazil offices during the period. Commenting on today s results, Spencer Manuel, CEO, said I am satisfied with the progress the Group has made during the period particularly in increasing our permanent placement revenue stream which now counts for over 25% of our net fee income and the continued expansion of our energy & engineering division which now represents 11% of Group net fee income, up from 6% last year. As outlined in our July trading update, the telecoms market remains flat albeit with some more positive sentiment in terms of future investment expectations from our key telecoms clients. I am also pleased to report some improvement in market conditions within our UK IT and Energy & Engineering divisions.

2 Whilst total net fee income was down by 7.7% against record H1 comparative figures, there remain significant opportunities to grow throughout the rest of this year, which would place us in a stronger position for growth as we enter With our strong balance sheet, profitable trading and good cash generation we are pleased, once again to announce an increase in our interim dividend of 16.7% on the corresponding period, which was itself up 33% on the previous year. * Reconciliation of adjusted profit 6 months to 6 months to 30 June June s 000 s Reported pre tax profit 3,110 3,290 Add: Amortisation of intangible assets arising on business combinations Exceptional item (note 4) *Adjusted pre tax profit 3,335 3,449 Enquiries: Networkers International Spencer Manuel, CEO Jon Plassard, CFO Numis Securities Limited David Poutney / James Serjeant (Corporate broking) Richard Thomas (Nominated adviser)

3 Networkers International Plc Chief Executive Officer s Report We are pleased to report on our Interim Results for the six month period ended 30 June Review of the business The Group s financial performance for the first half of 2013 has been satisfactory given the continuing backdrop of global economic uncertainty and a very challenging mobile telecoms marketplace. We started 2013 in a lower position in terms of contractor numbers than the start of 2012, which was a particularly strong comparative period. Given this challenging backdrop, the Group has performed admirably during the period to achieve earnings per share growth of 3.8% despite a small decline of 3.2% in adjusted pre tax profits to 3.34m (2012: 3.45m). After charges for amortisation on intangible assets arising on business combinations and litigation legal costs the Group s reported pre tax profit totalled 3.11m (2012: 3.29m). We have maintained our focus on international expansion, continuing to broaden our service offerings within our international offices and to expand the number of specialist areas we cover within our core sectors of IT, Telecommunications and Energy & Engineering. Whilst the share of income derived from clients located outside of the UK marginally reduced during the period to 70% (2012: 72%) the proportion of our staff located overseas increased to 45% of the total, as we continue to identify and invest in growth markets internationally. Overall, staff numbers are broadly in line with the corresponding period last year. Group revenue and net fee income (gross profit) Group revenue in the period has fallen by 12.4% to 79.4m (2012: 90.6m). Part of this fall in revenue is due to a sizeable shift in the group s sales mix from contract revenue to permanent revenue. The share of net fee income relating to permanent placements has risen to 25.6% (2012: 20.0%) during the period. In absolute terms, permanent fee income has shown growth of 19.2% with contract net fee income showing a decline of 14.4%. Overall, the fall in net fee income was 7.7% to 14.7m (2012: 15.9m). This is made up of a flat but admirable performance in the UK and a reduction of 10% in our international markets, attributable primarily to the difficult market conditions experienced in our international telecoms division. This is the reverse of what we have experienced in recent years where the telecoms division has seen compound annual growth of 19% pa over the previous 2 years. As stated above, the comparative period in H1 was particularly strong. When compared sequentially with H2 2012, revenue and net fee income were broadly flat. The Group s average gross profit margin totalled 18.5% in the period. This is an improvement on the 17.5% achieved in the comparative period last year. This has been achieved through a deliberate investment in recent years in our permanent revenue stream within our international telecoms sector together with an increased permanent bias within our expanding Energy and Engineering division along with our successful strategy to focus on higher contract margin within specialist areas of our core sectors. The mix of net fee income in our key markets is shown in the table below: Share of net fee income Telecommunications 52% 58% IT (Specialist Markets) 31% 30% IT (Strategic accounts) 5% 4% Energy & engineering 11% 6% Other 1% 2% 100% 100%

4 Telecoms As previously communicated by management, the demand for telecom contract engineers reduced throughout the second half of This was due to reduced investment from the global telecoms operators, which we consider to be an investment pause ahead of 4G rollout. This has resulted in the Group starting the current year with lower telecoms contractor numbers compared to record H1 comparatives. As such, the telecoms division has experienced an overall decline of 17% in net fee income which has brought the telecom division s overall net fee income back to H levels, prior to the strong telecoms growth experienced by the Group during the second half of 2011 and beginning of Encouragingly, the division s performance stabilised during the final quarter of 2012 and throughout the current period due to more stable market conditions within Europe and a noticeable pick up in demand in the Americas. In addition, management has continued with its successful strategy of investing in more specialist areas within the telecoms market, including high level permanent placements and within niche sub-sectors such as semi-conductor design and mobile billings. This has reduced the Group s reliance on telecom roll out business which is more prone to fluctuations caused by the timings of mobile network upgrades. Sequentially, the telecoms division s net fee income has shown only a modest decline compared to H and is now well positioned for growth once market conditions improve. This growth is expected to be driven by the anticipated investment in 4G as well as the continued convergence of IT and mobile telecoms technologies. IT The Group continues to transition the IT business towards more specialist technologies where skill shortages are greatest and therefore demand is stronger. This includes technologies such as Digital Media, Software Development, ERP and Trading Systems. Overall, the IT division has remained flat during the period with some growth within the international specialist IT markets offset by a small decline within the UK market. The IT division is now more diversified in terms of clients and technologies as well as geographically. We have seen some increase in demand from our UK based clients in recent weeks, particularly within the public sector but it is too soon to tell whether this will be sustained. Energy & Engineering Our Energy & Engineering business stream has performed strongly with net fee income having increased by 67% compared to the same period last year, following 33% growth in This now represents over 11% of the Group s total net fee income and we anticipate that this proportion will increase during the current year. We remain focussed on specialist areas within the energy sector including renewable energy and specific verticals within oil and gas. The market dynamics for the sector continues to have good growth prospects, particularly in the emerging markets where we already have a long history of providing cross border recruitment. Profit from operations Our conversion ratio (the ratio of profit from operations before amortisation of intangible assets to net fee income) has improved to 23.5% (2012: 22.6%). This is within management s expectations and indicates that the cost base is aligned to trading activity. Staff numbers at the end of June 2013 totalled 370, in line with the year end position. Staff located in our international offices now represents 45% of work force. The Group s profit from operations before exceptional item for the period totalled 3.33m (2012: 3.43m).

5 Litigation During 2006, three individuals filed a complaint for unspecified damages against a separate limited liability company operating overseas, managed by the Group, alleging that they were improperly classified as independent contractors rather than employees and are due additional payments for violations of wage and hour laws including those governing overtime pay, rest breaks, and meal breaks principally during the period 2005 and The claim was styled as a class action but the trial court ruled in favour of the company and denied class certification in The court of appeal affirmed the denial of class certification in The case was then put on hold pending the outcome of a lead case that was heard during The case was then referred back to the court of appeal to consider in light of the lead case outcome. On 12 December 2012, the California court of appeal overturned its original favourable decision and ruled that certain limbs of the claim could be certified as a class action. Last year s ruling did not consider the merits of the case which will only be considered if the case proceeds to trial. Should the case proceed to trial, it is likely to be heard during The company, based on legal advice, continues to believe that it has a strong defence to all claims. Notwithstanding this, and as previously announced, during the year ending 31 December 2012 the Board made a further exceptional provision of 1.0 million, in addition to the 0.6m already provided. During the current period the board incurred legal fees of 0.11m in relation to the claim. Profit before Taxation After legal fees of 0.11m (2012: nil) in relation to the ongoing litigation and net interest of 0.11m (2012: 0.14m) paid on our working capital facility, profit before taxation totalled 3.11m (2012: 3.29m). Taxation Due to the international nature of our business, the Group works within a variety of different tax regimes. Some of our overseas subsidiaries, particularly in the United States of America incur corporate tax rates significantly higher than that of the UK. In addition, a number of countries impose a withholding tax on services performed by the Group which is not always fully recoverable. As such, the effective tax rate for the period is 37.3% (2012: 35.8%). The Group anticipate that in the medium term the effective tax rate should reduce as a result of an improved mix of contribution to Group profits from our overseas subsidiaries. Cash flows and Balance Sheet The group has once again demonstrated its ability to generate cash with net cash inflow from operating activities totalling 2.69m (2012: 4.05m). The Group s debtor days (days sales outstanding) reduced by 1 day to 54 days (2012: 53 days). The Group has a strong balance sheet with net assets totalling 20.7m (2012: 21.4m) and net current assets totalling 15.1m (2012: 14.7m). Due to the Group s strong cash flow, net debt has reduced by 1m since the year end to 5.9m (June 2012: 5.9m) after making own share purchases of 0.33m, acquiring shares of minority interests of 0.31m and making dividend payments of 0.54m. Dividend The Company will pay an interim dividend of pence per share (2012: pence) on 18 October 2013 to all shareholders on the register on 27 September The shares will become ex-dividend on 25th September 2013.

6 Strategy The Group s overall strategy remains unchanged. The Group is committed to building up its specialist vertical markets within Telecoms, IT, and Energy & Engineering with a particular focus on expanding its international office network through increased headcount and new office openings in regions that offer high growth potential. We currently have 16 offices in 11 countries and 370 staff, of which 165 are located outside of the UK. Current trading In terms of current trading, within our telecoms division, whilst the business stabilised in the final quarter of 2012, we have not yet seen any meaningful increase in demand that we would expect to experience once 4G starts to be implemented globally. It is encouraging that sentiment has been more positive during recent weeks and there is more talk from customers about 4G investment, although this has not yet translated into significantly more business for the Group. Within our IT division, the business has been more buoyant during the last two months, it is particularly pleasing to see a pick up in demand from our clients within the UK IT division. Our Energy and Engineering division continues to perform strongly and we look forward to continued growth throughout this year and beyond, with the expectation of increasing its share of net fee income beyond the current 11%. Outlook Whilst it has been a challenging period for the Group, particularly for the telecoms division where we were up against strong comparable figures from H1 last year, there does appear to be an improvement in general market sentiment in our sectors. Whilst the Group s profits were slightly down on H1 last year, at this stage we remain on track to have a strong finish to the year and to meet management expectations. I would like to extend the appreciation on behalf of the Board to all our staff around the world for their continued hard work and dedication and once again making this another successful and profitable period for the group. Spencer Manuel CEO 19 September 2013

7 Networkers International Plc Consolidated income statement for the six month period to 30 June months to 6 months to 12 months to 30 June 30 June 31 December Unaudited Unaudited Audited Note 000 '000 '000 Revenue 2 79,417 90, ,673 Cost of sales 64,750 74, ,885 Gross profit 14,667 15,887 30,788 Administrative expenses Amortisation of intangible assets arising on business combinations Other administrative expenses 11,226 12,295 23,498 Total administrative expenses 11,337 12,454 23,838 Profit from operations before exceptional item 3,330 3,433 6,950 Exceptional item (see note 4) (114) - (1,000) Profit from operations after exceptional item 3,216 3,433 5,950 Finance expense (106) (143) (269) Profit before taxation 3,110 3,290 5,681 Tax expense 1,160 1,177 2,461 Profit for the period / year 1,950 2,113 3,220 Attributable to: - Equity holders of the parent 1,832 1,909 2,952 - Non-controlling interests Earnings per share 1,950 2,113 3,220 Basic p 2.14p 3.35p Diluted p 2.08p 3.28p

8 Networkers International Plc Consolidated statement of comprehensive income for the six month period ended 30 June months to 6 months to 12 months to 30 June 30 June 31 December Unaudited Unaudited Audited 000 '000 '000 Profit for the period / year 1,950 2,113 3,220 Other comprehensive income: Exchange gains / (losses) on retranslation of foreign operations 207 (251) (497) Total comprehensive income for the period / year 2,157 1,862 2,723 Total comprehensive income attributable to: - Equity holders of the parent 2,039 1,658 2,455 - Non-controlling interests ,157 1,862 2,723

9 Networkers International Plc Consolidated balance sheet as at 30 June 2013 At 30 June At 30 June At 31 Dec Unaudited Unaudited Audited '000 '000 '000 Assets Non current assets Intangible assets 5,783 5,952 5,761 Property, plant and equipment Deferred tax asset 1, ,166 Total non current assets 7,509 7,049 7,414 Current assets Trade and other receivables 37,466 37,608 34,470 Current tax assets Cash and cash equivalents 2,725 2,559 2,197 Total current assets 40,191 40,285 36,667 Total assets 47,700 47,334 44,081 Liabilities Current liabilities Trade and other payables (16,066) (16,874) (12,982) Loans and borrowings (8,605) (8,471) (9,092) Provisions (211) (269) (289) Current tax liability (232) - (130) Total current liabilities (25,114) (25,614) (22,493) Non-current liabilities Provisions (1,817) (217) (1,817) Deferred tax liability (37) (63) (50) Total non-current liabilities (1,854) (280) (1,867) Total liabilities (26,968) (25,894) (24,360) Total net assets 20,732 21,440 19,721

10 Networkers International Plc Consolidated balance sheet as at 30 June 2013 (continued) At 30 June At 30 June At 31 Dec Unaudited Unaudited Audited '000 '000 '000 Equity Share capital Share premium Retained earnings 18,384 19,054 17,601 Foreign exchange reserve 7 46 (200) Capital redemption reserve Reverse acquisition reserve Attributable to equity holders of the parent 20,218 20,885 19,192 Non-controlling interest Total equity 20,732 21,440 19,721

11 Networkers International Plc Consolidated cash flow statement for the period to 30 June months to 6 months to 12 months to 30 June 30 June 31 December Unaudited Unaudited Audited 000 '000 '000 Cash flow from operating activities Profit before taxation 3,110 3,290 5,681 Adjustments for: Depreciation Amortisation of intangibles Equity settled share based payment expense Finance expense Cash flows from operating activities before changes in working capital and provisions 3,476 3,748 6,534 (Increase)/ decrease in trade and other receivables (2,613) ,277 Increase/ (decrease) in trade and other payables 2,943 (289) (2,516) Cash flows generated from operations 3,806 5,846 9,295 Income taxes paid (1,100) (1,793) (3,311) Net cash flows from operating activities 2,706 4,053 5,984 Investing activities Purchase of property, plant and equipment (142) (69) (268) Purchase of intangibles (46) - (13) Purchase of shares of non-controlling interests (313) - (22) Acquisition of subsidiary, net of cash acquired (129) - - Net cash used in investing activities (630) (69) (303) Net cash before financing activities 2,076 3,984 5,681 Financing activities Interest paid (106) (143) (269) Dividends paid to shareholders (539) (543) (1,025) Dividends paid to minority interests - - (49) Repayment of invoice discounting (487) (2,704) (2,083) Issue of share capital Purchase of shares held in treasury (332) - (1,965) Net cash (used in) / from financing activities (1,428) (3,320) (5,315) Effects of exchange rate changes (120) (229) (293) Net increase in cash and cash equivalents Cash and cash equivalents at the start of the period 2,197 2,124 2,124 Cash and cash equivalents at the end of the period (note 5) 2,725 2,559 2,197

12 Networkers International Plc Notes to the unaudited interim financial statements 1 Basis of preparation These interim financial statements have been prepared using policies based on International Financial Reporting Standards (IFRS and IFRIC Interpretations) issued by the International Accounting Standards Board ( IASB ) as adopted for use in the EU. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2012 Annual Report. The financial information for the half years ended 30 June 2013 and 30 June 2012 do not constitute statutory accounts within the meaning of Section 434 (3) of the Companies Act 2006 and is unaudited. The annual financial statements of Networkers International Plc are prepared in accordance with IFRS as adopted by the European Union. The comparative financial information for the year ended 31 December 2012 included within this report does not constitute the full statutory Annual Report for that period. The statutory Annual Report and Financial Statements for 2012 have been filed with the Registrar of Companies. The independent Auditors Report on that Annual Report and Financial Statement for 2012 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498 (2) or 498 (3) of the Companies Act After making enquiries, the directors have concluded that the Group have adequate resources to continue operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly consolidated financial statements. The same accounting policies, presentation and methods of computation are followed in these interim consolidated financial statements as were applied in the Group s latest annual audited financial statements. In addition, the IASB have issued a number of IFRS and IFRIC amendments or interpretations since the last Annual Report was published. It is not expected that any of these will have a material impact on the Group The Board of Directors approved this interim report on 19 September Segment information The Group has 3 main reportable segments: Information Technology division - This division is involved in the sourcing, recruitment and supply of IT personnel across a range of industries both in the UK and globally. This division generates 52% (June 2012: 52%) of the Group's revenue. Telecommunications division - This division is involved in the sourcing, recruitment and supply of highly skilled telecom engineers to global telecommunication enterprises. This division of the business generates 42% (June 2012: 45%) of the Group's revenue. Energy and Engineering division: This division is involved in the sourcing, recruitment and supply of Energy and Engineering personnel to a range of global industries. This division of the business generates 6% to the Group s revenue (June 2012: 3%). All segments are monitored by the Board of directors as well as senior management. Factors that management used to identify the Group's reportable segments The Group's reportable segments are strategic business units that although supplying the same product offerings, operate in distinct markets and are therefore managed and reported on separately. Measurement of operating segment profit or loss, assets and liabilities

13 The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. The Group evaluates performance on the basis of profit or loss from operations before tax not including overhead costs such as those incurred by the support centres, goodwill impairment, and also excluding the effects of share based payments. Six months ending 30 June 2013 IT Telecoms Energy Total '000 '000 '000 '000 Revenue from external customers 40,979 33,511 4,927 79,417 Segment profit before income tax 1,185 2, ,590 Six months ending 30 June 2012 IT Telecoms Energy Total '000 '000 '000 '000 Revenue from external customers 46,753 40,760 3,109 90,622 Segment profit before income tax 1,162 2, ,748 Year ending 31 December 2012 IT Telecoms Energy Total '000 '000 '000 '000 Revenue from external customers 88,061 76,395 6, ,673 Segment profit before income tax 2,631 4, ,534 Reconciliation of reportable segment profit to the Group's corresponding amounts:

14 Profit after income tax expense 6 months ended 30 June months ended 30 June 2012 Year ended 31 December Total profit or loss for reportable 3,590 3,748 7,534 segments Exceptional Item (114) - (1,000) Depreciation (133) (107) (212) Amortisation of intangibles (127) (171) (367) Share based payments - (37) (5) Interest expense (106) (143) (269) Profit before income tax expense 3,110 3,290 5,681 Corporation taxes (1,160) (1,177) (2,461) Profit for period/ year 1,950 2,113 3,220 Geographical information: Revenue is recognised based upon where the actual service is provided. 6 months 6 months Year ended ended ended 30 June 30 June 31 December Revenue Europe 62,943 75, ,028 Middle East and Africa 4,425 5,484 10,217 Americas 10,147 7,158 15,797 Asia Pacific 1,902 2,659 3,631 Group 79,417 90, ,673

15 3 Earnings per share 6 months ended 30 June months ended 30 June Year ended 31 December Numerator Earnings used for calculation of basic and diluted EPS 1,832 1,909 2,952 Numerator Earnings used for calculation of adjusted EPS Profit on ordinary activities after taxation 1,832 1,909 2,952 Add back: Amortisation of intangibles arising on business combinations (net of tax) Share based payment charge (net of tax) Litigation provision (net of tax) Adjusted earnings 2,017 2,097 3,929 Number Number Number Denominator Weighted average number of shares used in basic EPS 83,404,352 89,252,884 88,113,684 Effects of employee share options 2,032,460 2,459,809 1,966,019 Weighted average number of shares used in diluted EPS 85,436,812 91,712,693 90,079,703 Period end number of shares (excluding shares held in treasury) used in adjusted EPS 82,985,269 89,481,424 83,535,269 Basic 2.20p 2.14p 3.35p Diluted 2.14p 2.08p 3.28p Adjusted 2.43p 2.34p 4.70p The number of options excluded from the diluted EPS calculation is nil (June 2012: 50,000; Dec 2012 : nil)

16 4 Provisions Litigation Property Other Total 000 '000 '000 '000 At 1 January Utilised in period - - (112) (112) At 30 June Transferred from Accruals Charged to profit or loss as an exceptional item 1, ,000 Charged to profit or loss Utilised in year - - (145) (145) At 31 December , ,106 Charged to profit or loss - - (78) (78) At 30 June , ,028 Current Non current 1, ,817 1, ,028 Property provisions include a provision for dilapidations at the Group s offices and will be recognised at the end of the lease term in Other provisions include provisions for holiday pay and discounts. The Group is currently involved in an overseas litigation dispute as described in the CEO Report. The amount provided represents the directors' best estimate of the Group's liability having taken legal advice. Uncertainties relate to whether claims will be settled out of court or if not whether the Group is successful in defending any action. Because of the nature of the disputes, the directors have not disclosed future information on the basis that they believe that this would be seriously prejudicial to the Group's position in defending the case brought against it. During the period the Group incurred legal fees of 114,000 in relation to the litigation. 5 Reconciliation of Cash and cash equivalents 30 June June December Cash available upon demand 2,725 2,559 2,197 Cash and cash equivalents 2,725 2,559 2,197

17 6 Payment of dividend The Directors recommend the payment of an interim dividend for the six months ended 30 June 2013 of 0.700p per share totalling 0.58m (2012 Interim: 0.600p per share totalling 0.53m) 7 Cautionary statement Networkers International plc has made forward-looking statements in this press release, including statements about the market for and benefits of its products and services, financial results, the potential benefits of business relationships with third parties and business strategies. These statements about future events are subject to risks and uncertainties that could cause Networkers International plc s actual results to differ materially from those that might be inferred from the forward-looking statements. Networkers International plc can make no assurance that any forward-looking statements will prove correct. These interim results are available from the Group s website