Annual Report and Accounts 2011/2012

Welcome to the ITHR Group’s second Directors report and financial statements.  The purpose for creating the Group structure in 2011 was to individually develop and grow the various operating companies and trading brands independently of each other recognising their very different needs, service offerings and the resulting need to follow different growth strategies.

Today the ITHR Group is comprised of 7 trading companies (two acquired post balance sheet) and 10 trading brands in the UK and now Singapore.  We service a Client base that is truly Global.

During the year we grew our business some 32% to £31.8m (2011: £23.7m) across all trading companies which, although at the lower end of our forecast and expectations is no mean feat in a Global economic environment which is still very uncertain and, most certainly incredibly “challenging”.  Group profitability reduced as a result and, was in-line with of our continued and pre-planned heavy investment in our core IT and Telco recruitment operations in order to grow these divisions, which I will expand on later in this report.

During the year we broke new ground when we acquired, in an all cash transaction, Swan iT Recruitment Ltd, a specialist SAP recruitment agency with trading operations in the UK and South Africa.  Swan’s specialist market has been affected by the economic downturn and in the light of that continued to perform well during the year and looking at the entire acquisition experience Swan’s acquisition, integration and contribution to the Group position during the year I view as positive and successful.

Post balance sheet the ITHR Group acquired, again in an all cash transaction, 100% of the shares in Global banking and financial markets recruitment specialists 7 Fifty Two Solutions Ltd and 7 Fifty Two Solutions (Asia) Pte based in Singapore.  In common with our acquisition of Swan iT 7 Fifty Two service a niche core recruitment sector which ITHR has never historically traded in, a sector with incredibly “high” barriers to entry, with any seriousness at all.

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 by that I mean that our acquisitions have been organically funded as well) 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.

At the time of writing Recruitment International’s annual Top 250 report was published.  The ITHR Group was listed at 130 in the list of all UK recruitment agencies and 29 in IT focussed organisations, which is exceptional for an organisation created from scratch a mere 13 years ago and one that has been 100% self-funded from inception and one to this day that does not rely on any 3rd party finance of any description to fund our continued operations.  All facts that we are immensely proud of.

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 over 25 years.  The core business of the company is the provision of quality Information Technology, Telecommunications and e-business Human Capital solutions to Blue Chip Clients, both Nationally and Internationally.  Today we serve our clients in over 25 countries worldwide.

Once again trading in our core recruitment business, more specifically the permanent recruitment sector, has been challenging reflecting the generally anaemic economic backdrop of the Eurozone as a whole and as a result of the continued spectre of a “double dip” recession which has been lingering in the background for more than a year now. 

I am delighted to report that during the year and despite these challenges we have seen the fruits of our considerable investments in our core recruitment business with sales revenues, particularly as a result of our strong freelance placement performance, increasing some 64% to £11.8m (2011: £7.2m).  This is almost entirely due to prior year investments (outlined in previous reports) converting those into increased sales.  Those investments have been made in four main areas: physical office, where we re-located, quadrupling the size of our sales floor space; IT front and back office infrastructure replacement (which will be rolled out across all our newly acquired operations in the coming year), handing our sales staff state-of-the-art IT tools to enable them to be more efficient and productive; a complete Group, trading and brand overhaul and the spinning out of our niche specialisms into their own unique trading brands separate to our core mainstream ITHR recruitment offering and finally, and most importantly, our considerable investment in our people increasing our sales staff headcount by 35% from 44 to 60 in the year.  We have also continued that commitment to our staff and continued to invest in existing staff as well as new staff through on-going training programmes at all levels of staff from trainee through to senior management.

As just mentioned, last year we completed our agency re-branding with a fresh new identity - - and successfully launched two new niche brands spinning them out from the mainstream business not only to reflect what we were already doing, but also to allow those brands to be outwardly recognised as specialists in their respective fields.  The brands created were 48 Digital - - a focussed new media sector expert team and ITHR Telco - - the specialist supplier to the Global telecommunications marketplace.  Separately identifying these brands it will allow us to extend their niche offerings to the wider Group Client base, and most certainly into our acquisition(s) Client base.  Indeed at the time of writing we are already in the process of extending the Telco brand into our newly acquired Singapore operation where the market for these types of resource is potentially enormous.

For the coming year our goal is to further consolidate our Agency Client base which added some 140+ new Clients in the year building deeper relationships with those Clients where we move from “supplier” to “trusted partner” thereby increasing the revenue/Client ratio.  Targeted investment in our infrastructure last year is now proving to be a competitive and compelling advantage in offering our clients a more complete solution to their requirements.  Because of our investments both past and continuing I anticipate that core Agency revenues will increase a further 40% in the coming year to be in the region of £16.5m as a minimum with an upside to £18m.

ITHR Consulting's - - ethos of quality and “creative” software development has ensured its continued success this last year.  Whilst turnover is slightly down on last year, the direct result of the effects of a struggling economy on some of our larger clients, it has maintained its healthy profit position with a small increase in net profit margin, albeit on a marginally lower turnover, impacted by the weakening Euro on our International sales but is nonetheless quite an achievement in the current economic climate where margins are being continually squeezed.  This has been achieved through the expansion and diversification of our client base (adding 3 new and significant Clients in the year) beyond our traditional mobile platform expertise and the development of new business with customers who are searching for a tactile, innovative and efficient onshore and near shore development solution.  The offshore legacy of inefficiency and a lack of creativity and flexibility does not lend itself well to the rapidly evolving world of mobile internet.

We work closely to support our clients in overcoming their business challenges, be they technology or talent drive and believe our consulting’s innovative and highly capable offering utilising best of breed talent is at the forefront of our target market, able to outperform our competition be they a niche development house or a Global systems integrator, which we have demonstrated and proved time and time again to our Clients.  For these reasons the outlook for ITHR Consulting remains bright despite the general economic climate and with a forecast of modest rising revenues and profits in the coming year as we win and deliver new and more diverse Client projects.

During the year we have seen continued media debate, including the publication of the eBay mobile manifesto and the Mary Portas high street report, about the effect of the internet, mobile and the social network on the retail sector.  nToklo - - ITHR's, fledgling software product business and provider of social discovery and recommendations tools for e-retailers is at the forefront of this changing retail ecosystem providing solutions that allow the retailers to embrace and empower their customers need to socialise and share their shopping experiences online.

This year saw nToklo's first implementation with a roll out for a Global digital media and content provider, powering recommendations for all of its white label online and mobile music retail offerings across 12 European markets.

With the continued debate about what “social commerce” really is and the social network(s) and the retailer(s) attempts to commoditise the consumers social community nToklo is well placed to take advantage of this increased market awareness.  Our outlook for next year is extremely positive and at the time of writing we are close to signing our second major rollout contract.

Our newly acquired operations of Swan iT Recruitment - - in April 2011 flat lined during the year which, although disappointing on the one hand, was not wholly unexpected given their market specialism.  The compelling rationale behind the acquisition was that Swan are a niche SAP/ERP sector specialist - a market which ITHR has never served, although has tried unsuccessfully several times to enter organically.

The nature of Swan’s market is that demand is predominately from large multi-national corporates implementing large scale software projects which often take many years to complete.  These projects tend to be the first to be cut in an economic downturn, but still take a long time to fully wind down, at which point the sector stagnates somewhat.  Coming out of recession, however, the sector historically has also been the first to rebound.  We believe that we will be excellently placed to take advantage of that as and when it happens, but erring on the cautious side and not wishing to “outguess” the recovery in the coming year, I am predicting modest growth with profitability and net contribution to the Group proportionate to that growth.

Turning lastly to our online portal recruitment business - - this too had a challenging year, gaining modest traction within the specialist Microsoft Partner community.  We have invested in this business, which is part of the Global MS Employ family which operates in 8 countries in Europe and North America and will continue to support this albeit, with a changed focus and strategy currently under review.

Not wishing to dwell too much on our post balance sheet acquisition but I do feel it is material to the future of the ITHR Group strategy and success to elaborate a little.  7 Fifty Two Solutions UK Ltd and Asia Pte - – very much like Swan iT has incredible synergies for ITHR.  7 Fifty Two are specialists in the IT banking and finance sector and hold an “A List” Client base of finance Clients both in London’s square mile and in Asia.  As with Swan this is a market with high barriers to organic entry, and we have likewise tried without success over the years.

Aside from the increased revenue and the future addition of net contribution to the Group the second biggest opportunity for ITHR will be the future ability to spin out ITHR’s other brand offerings into financial markets both in the UK and, in particular, Asia.  Watch this space!

This last year, despite the continued economic malaise has overall been good for the ITHR Group.  We made considerable progress on many fronts both operational and financial having experienced many positives across all trading operations and remain confident and positive, but suitably cautious for the coming year.

Our core agency increased turnover some 64% adding numerous new Clients both domestically and internationally, our Consulting division add several “household name” Blue Chip Clients.  nToklo won and delivered its first product implementation, Swan iT produced a solid performance with a net contribution to the Group.

In summary for the Group - - we increased top line revenues by some 34% to £31.8m and delivered profit before taxation of £1.4m, hold an exceptionally strong balance sheet increasing net assets in the year by almost £1m to £8.4m – an enviable position amongst our comparator competitors.  We remain extremely cash positive and are still entirely self-funded with no outside funding, be that “investor” cash or invoice financing, again an enviable position and one that allows us to continue to seek further synergistic and for the Group “value proposition” acquisition opportunities.  Additionally this affords us the ability to react quickly to opportunities (as in the case of 7 Fifty Two) and not get bogged down in “red tape”.  A position that externally funded companies struggle with.

Consultants on billing at the end of the year were some 440, inclusive of 7 Fifty Two, and I anticipate and it is my forecast that we achieve a figure of some 590 by the end of FY2012/13.  With that in mind, and coupled with current management information in hand at the time of writing, my forecast for Group turnover for the coming year is £44m at the lower end of my expectations, £46m at the top and an exceptionally optimistic £48m if certain current avenues for internal, organic expansion initiatives come to fruition.

Net profits I expect to be once again in line with current performance, mainly due to a trade-off between improving results of existing business(es) growth and investments in newer ventures which will not produce a return in the coming year, but which will offer excellent opportunity and return in following years.

Sean Gallagher