Investors

Welcome to the ITHR Group plc’s first ever Directors Annual Report and Accounts. At the beginning of the year the ITHR Group was created in order to recognise and allow the various operating companies of IT Human Resources plc; each of increasingly diverse service offerings, specialisms and USP’s the freedom to focus, develop and grow independently of each other. Of equal importance the new structure allows us to identify, acquire and integrate seamlessly like-minded target companies, a much vaulted mind-set in previous Annual Reports, to complement our service offerings to a wider client base.

It is my pleasure to deliver this report which is a landmark for me as I have been running ITHR now for longer than I have actually been employed by the “corporates” of our industry – an industry which has seen off several recessions and huge amounts of change in every area of business from technology to legislation/regulation. We as a sector are not alone in the current economic climate, as every industry faces change and change is what gives lifeblood to the recruitment industry, and in particular the IT recruitment sector.

The ITHR Group is a proudly independent organisation, wholly funded, owned and managed by the Directors and Employees of the Company. All growth since our inception in 1999 has been achieved organically and has been driven by our quality ethos in all of our business dealings with all stakeholders; be they with our customers, candidates or suppliers and by our desire to succeed in a spirit of true partnership.

Our aim is to innovate our chosen marketplaces with total professionalism whilst being flexible enough through our independence not only to meet but exceed our Clients' expectations.

The founding roots of the ITHR Group are firmly planted in the IT recruitment and resourcing market – an industry that I am proud to say that I have been a professional now for nearly 25 years. It is quite scary how time flies so fast when you’re having so much fun! The core business of the company is the provision of quality Information Technology, Communications and e-business Human Capital solutions to Blue Chip Clients both Nationally and Internationally. Today we serve our clients in over 20 countries Globally.

Once again trading in our core recruitment business has been challenging. The year started brightly but soon softened and remained tentative for most of the year with a further marked slowdown in Q4, most probably as a result of the continued spectre of a “double dip” recession that is still being bandied about today. However looking on a macro level, industry volume spend as a whole did increase in the year and to take advantage of that we have been working very hard on our strategy for growth which is now starting to pay dividends. It is obvious to me that this growth has and will fall into two categories – volume commodity supply (an arena where we have never previously sought to play) and specialist, high demand/short supply skills – our core market. Now we have the capacity and infrastructure to service the former we will be attacking both markets in coming years.

The 4 cornerstones of that strategy are: office re-location, leadership team and sales recruitment, technology and infrastructure and branding and market positioning.

During the year we finally re-located to our state of the art flagship HQ in Piccadilly, an office which will allow us to more than triple our recruitment sales force. The new leadership team is now complete and a massive recruitment drive of proven, quality recruitment professionals during the year near enough doubled the team which also now includes our newly formed elite resourcing team - who will become our future sales superstars. This recruitment drive has continued unabated since the year end and we will continue to grow the team by a further 50% in the coming year.

As part of the re-location we completely replaced our entire office and technology infrastructure. We now provide our sales consultants with world class and industry leading tools from our new server array to the pc on the desktop and a newly rolled out integrated sales CRM, sales and management reporting suite. All are fully www enabled and coupled with a seamless contractor management system and accounts integration from placement to client payment these new workflow systems we believe are the most advanced in, and the envy of, our industry. Finally, and still work in progress but nearing completion is a complete overhaul of our trading brands and positioning in the market which will include “spinning out” of our already successful niche specialist areas into their own standalone brands. Each will launch their identities along with rejuvenated existing core www site all of which will be fully interfaced with our internal sales CRM and back office systems. We expect this to be complete around the end of Q2.

As a summary if we take away the fact that revenues were lower in the year and profitability slipped into deficit as a board we are more than comfortable with this position and the progress we are making. As we have always recognised we were on a journey of rejuvenation in our core recruitment business which reversed somewhat due to internal and external factors, a refresher in Porter’s 5 forces due perhaps.. What can be more easily said is that the costs associated with our quite significant investment in the business are directly attributable to the bottom line performance.

On the flip side and as a consequence of these strategies we have seen a steady quarter on quarter increase in core recruitment revenues and firmly believe we are on budget to increase revenues by more than 80% in the coming year, which will be a fantastic 1st year return on our considerable investment and will be the platform for our further year on year growth.

ITHR Consulting’s considerable success over recent years has been predominantly based on employing the “Best of the Best” from the Global professional IT labour market, and in particular our development “dream team”. Our development team produces quality output time after time with an efficiency that pits us directly head to head on the price/quality performance “measure” with our competitors, be they “big four” Systems Integrators or offshore solution providers.

However, as with our recruitment business we have not been immune to the general economic malaise of the past year. The first half was robust and bullish, with the second half being pegged back and somewhat flat with many corporate Clients either cutting budgets across the board or cancelling entire development initiatives from the drawing board or mid-stream. Whilst we are agile enough to switch in and out industry best resources as projects demand our single largest fixed cost is our dedicated 80 seat development centre in central London – a USP of our service offering and one still well received by our Clients who are becoming increasingly disillusioned with “offshore” development solutions. Quarter 4 saw a revival in fortunes with a number of existing and, more importantly, new Client project wins so our forecast for the coming year is a modest return to growth and proportionately increased profitability.

The net result of all of this is that whilst turnover was flat with some exceptionals added back in the year (such as the continuing volatility in the currency markets and our on-going investment in software product development) profitability was still robust.

Turning lastly to our two fledgling businesses, MyPhoneHas and ITHR Online, again both faced their own challenges in the year. MPH was a software product we launched some 18 months ago. As one of the world’s first socially aware internet retail and recommendation portals to be honest it was way too far ahead of its target business and consumer markets. Following industry behemoths such as E-Bay, Apple and Amazon who have now similarly recognised the potential of social networking integration with the online retail industry we sought re-engineer MPH and launched NToklo – the next generation of our product (www.ntoklo.com). At the time of writing we are currently in final negotiations for the first NToklo Client commercial deal with a Global online content aggregator and following that we hope to ship NToklo as an integrated value added service with a high profile Global mobile operator. The coming 18 months will be revenue defining for our innovative software product offering, especially as we have further ideas and aspirations in this market space.

ITHR Online’s year again experienced mixed fortunes. However, finally in February 2011 we launched our completely re-developed www portal that has now enabled us to go to market full steam, something that we had been unable to do before. MSEmploy (www.msemploy.co.uk) is the only Microsoft dedicated recruitment and training portal solely for Microsoft partner companies and certified Microsoft IT professionals. Put simply it is unique, supported directly by Microsoft and indeed showcased at their recent 2011 World Partner Conference in Los Angeles by Microsoft’s Global Head of Learning Lutz Ziob in his keynote speech. MSE now operates in 8 countries in Europe and North America with further expansion planned. The re-launch of the new www site has been well received by our Clients and I expect this business stream now to start to contribute to Group revenues after uncertain beginnings.

At this point I feel it is pertinent to note that since the year end the newly formed ITHR Group made its first acquisition. On the 6th April ITHR acquired in an all cash transaction the entire issued share capital of Swan iT Recruitment Ltd, a specialist and independent leader in the SAP recruitment and resourcing sector.

As an organisation with strong cash flows and balance sheet and continuing to be cash positive it has long been an ambition of ours to put those resources to better use in the long term interests of shareholders and growth of our Group. We have been seeking such an acquisition for several years (as stated in previous reports) and the purchasing of Swan iT was an easy decision as the synergy between the company and the people within it were so similar. Swan iT is an incredibly well run company, extremely profitable, cash generative business (very much like the ITHR Group) and very much a people driven business. Our only real differences were that Swan iT excel in a market sector that ITHR have struggled (with limited success) many times to break into. We firmly believe that as part of the ITHR Group our know-how, market leading reputation and considerable resources we can further develop, nurture and grow Swan iT to be a sector leading player.

In summary for Group operations and trading I feel that we have had a great albeit tough year. Revenues were slightly down, which was disappointing, but not wholly unexpected given the macro economic climate and the diversity and various developmental stages of our businesses. We have, most significantly, weathered another turbulent year we have added value to our already strong balance sheet and maintained cash reserves. At the same time our debtor book for the Group rose some 13% and for our agency business some 20% resulting from increased trading positions at the end of the year and continuing to grow into the new financial year. Given the current economic and trading climate I feel sure any CEO would be proud to report these sets of accounts, and I am no different.

I feel the financial, people, technology and infrastructure investments and management inputs we have made in all of our business units this past year will stand us in good stead and the results of those investments will show directly in our individual operating company’s Profit & Loss accounts.

Over the next years we expect to reap the longer term rewards as an independent company that whilst at the same time having ambitions to grow to a £50m+ organisation will still retain the ability to take a longer term view, whereas most of our financed/shareholder/dividend driven competitors do not enjoy that luxury.

Clearly the entire economic outlook is to say the least “uncertain”. Indeed, at the time of writing Libya is in a state of civil war (a country that pre the uprising produced 2% of the world’s crude oil and as a country is in the world’s top 10 in terms of oil reserves), the financial markets are in meltdown following the US’s sovereign debt downgrade and rumours of QE2 abound, and perhaps needs to happen with the so called Euro “PIGS” lurching closer to requiring more EU debt support.

Our Q1 was somewhat slow but from the increase in activity of all of our operating companies I feel that our organic internal and external investments (and by that I mean I view our acquisition in the year as organic in that it was internally cash funded and not supported by loans, investment funds or share issues) are starting to produce real results – which will flow directly to the bottom line.

In summary and with great anticipation the target turnover the board have set for the coming year is £32m at our lower levels and £35m at our upper level of expectations. Profits before taxation we anticipate will largely unchanged and in line with historic trading. As a group organisation we still remain one of the most profitable and cash generative in the industry.

Sean Gallagher
CEO, ITHR Group plc