Source - RNS
RNS Number : 1412L
Harvey Nash Group PLC
29 September 2016
 

HARVEY NASH GROUP PLC

("Harvey Nash" or "the Group")

Unaudited Half Year Results for the six months ended 31 July 2016

Harvey Nash, the technology recruitment and offshore services group, announces its half year results, which are in line with the Board's expectations and show strong cash flows, despite increasing revenues, with a 5% uplift in the Group's interim dividend.

 

Financial Results

 

 

 

31 July 2016

 

31 July 2015

 

Change

Continuing operations

 

 

 

Revenue

£377.7m

£328.7m

+ 14.9%

Gross profit

£47.3m

£44.4m

+ 6.5%

Operating profit1

£4.2m

£5.2m

- 19.0%

Profit before tax1

£3.8m

£4.8m

- 20.4%

Earnings per share1

3.58p

4.82p

- 25.7%

Total operations

 

 

 

Statutory profit before tax1

£3.8m

£4.0m

- 6.5%

Earnings per share1

3.58p

3.85p

- 7.0%

Interim dividend

1.565p

1.490p

+ 5.0%

Net borrowings

£6.8m

      £15.7m

+ £8.9m

 

H1 Highlights

 

•   Revenue increased by 14.9% (constant currency +8.0%) overall and gross profit by 6.5% (constant currency +0.8%)

•   Strong operating cash inflow of £15.2m with net borrowings reduced by £8.9m on prior year

•   Interim dividend increased by 5.0% to 1.565p

•   Operating profit in the UK & Ireland impacted by the EU referendum

•   Operating profit in Europe up by 6.6% (constant currency -4.3%) with strong performances in Sweden and the Benelux

•   Operating profit in the USA held back by 7.3% increase in fee-earners and record comparatives from the prior year

•   Strong results reported in Japan and Australia, offset by weakness in Hong Kong and currency headwinds in Vietnam

 

Albert Ellis, Chief Executive Officer, said:

 

"The six months under review have produced year-on-year growth in revenue and gross profit, as well as strong cash generation. An increased interim dividend, despite the challenges of the first half, reflects the Board's confidence in the resilience of the Group's business model and its strong balance sheet.

 

"Although mindful of macro-economic challenges, client demand for new hires continues to be driven by digital transformation, cybersecurity and data analytics and the Group's strategy remains the prudent expansion of fee-earning capability and growth in market share, coupled with tight control of costs and working capital."

 

ENQUIRIES:

 

Harvey Nash

 

Albert Ellis (CEO) and Richard Ashcroft (CFO)

 

Tel: 020 7333 2635

 

 

 

Hudson Sandler

Michael Sandler / Cat Valentine

Tel: 020 7796 4133

 

 

Chairman's statement

 

The Group has delivered revenue and gross profit growth in all principal geographic regions outside the UK & Ireland for the six months ended 31 July 2016. The UK & Ireland was slightly below the prior year's record results.

 

Growth in European contract managed services and a favourable Euro exchange rate lifted Group revenue during the period to £377.7m (2015: 328.7m2), an increase of 14.9% compared to continuing operations in the prior year. The constant currency increase was 8.0%3.

 

Gross profit from continuing operations increased by 6.5% to £47.3m (2015: £44.4m2), reflecting a change in the mix of revenue. On a constant currency basis the increase was 0.8%3.

 

Operating profit of £4.2m was 19.0%1,2 lower than the prior year, mainly due to the impact of uncertainty in the UK caused by the EU referendum. This significantly affected higher margin permanent recruitment fees, the impact of which flowed directly to operating profits. This gave rise to the inclusion of a number of one-off costs, relating to the reduction of headcount in the UK.  There were also some one-off costs in Germany relating to the disposal of Nash Technologies in December 2015, which also held back operating profit at the Group level.

 

The strategic review in 2015, which resulted in the disposal of Nash Technologies GmbH and the closure of the oil and gas practice, has de-risked the Group and the balance sheet has been strengthened. The focus on the core business combined with tight control of working capital resulted in stronger cash flows.

 

Statutory profit before tax of £3.8m (2015: £4.0m) was £0.2m lower than the prior period and earnings per share were 7.0% lower at 3.58p (2015: 3.85p). The tax charge for the year was £1.2m (2015: £1.2m2), reflecting a slight increase in the effective tax rate to 31.3% (2015: 30.8%).

 

Balance sheet

 

The balance sheet at 31 July 2016 was strengthened by an increase in the value of non-sterling denominated assets to £57.5m compared to 31 January 2016 (£54.1m). Intangible fixed assets increased by 6.5% to £53.8m (2015: £50.5m) due to the appreciation of the Euro and the US Dollar against Sterling.

 

Successful management of working capital significantly improved the strength of the balance sheet, compared to the prior year, as net borrowings reduced by £8.9m to £6.8m (2015: £15.7m), despite the growth in revenue. Debtor days were 8.3% lower at 41.8 days, (2015: 45.6 days).

 

Net trade receivables were up 5.9% to £112.8m (2015: £106.6m), through a combination of the appreciation of non-sterling debtors by £15.8m, a reduction of £9.6m linked to improved cash collection and the disposal of Nash Technologies (2015: £3.7m). Trade and other payables increased to £131.3m (2015: £112.1m), due to the appreciation of non-sterling payables and the favourable timing of contractor payments. Contingent consideration reduced by £1.7m to £0.6m (2015: £2.3m), as the final tranche of consideration for the Group's acquisition in Belgium was settled.

 

Cash flow

 

Net cash generated from operating activities improved materially on the prior year to £1.5m (2015: outflow £13.6m), a positive reversal of £15.1m, mainly due to improvements in working capital but also reflecting a swing away from working capital absorbing services. This was reflected in the net cash outflow on working capital of £1.4m in the period, compared to the outflow of £16.3m in the prior year.

 

Cash absorbed by investing activities increased by £3.9m to £6.5m (2015: £2.6m), as deferred restructuring commitments arising out of the prior year of £4.0m were settled and a loan of £2.0m advanced in accordance with the agreement to dispose of Nash Technologies GmbH. This outflow was mitigated by a reduction of £0.7m in capital expenditure across the Group to £0.5m (2015: £1.2m), which mainly related to routine technology and software infrastructure. Tax paid was £1.9m, 25.7% lower than the prior year (2015: £2.6m), with reduced payments in the UK and parts of Europe.

 

The overall inflow of cash resulted in the Group's net borrowings reducing by £8.9m to £6.8m at 31 July 2016, compared to the same date in the prior year (2015: £15.7m).

 

Dividend

 

The Board proposes a 5.0% in the interim dividend to 1.565p per share (2015: 1.490p per share), which will be paid on 18 November to shareholders on the register on 21 October 2016.

 

Operational review

 

United Kingdom & Ireland

 

The results from the UK and Ireland were mixed with demand for permanent hiring subdued, compared to the strong demand experienced in the six months to 31 July 2015. The uncertainty arising from the EU Referendum began to have an impact on demand from the fourth quarter ended 31 January 2016. This resulted in a swing in UK operating profits from record levels in the first half to 31 July 2015 to lower levels of profit exiting the second half into 2016, reflected in the split of operating profit in the proportion 64:36 over the two halves of the year to 31 January 2016. This UK wide slowdown determined the lower run rates in permanent recruitment experienced in the UK & Ireland for the period leading up to the EU referendum vote.

 

Despite this, contractor numbers were steady and revenue increased by 7.3% to £125.2m (2015: £116.7m2). Gross profit of £18.4m was lower (2015: £18.8m2) due to the lower levels of permanent recruitment. Accordingly operating profit of £1.6m (2015: £2.1m1,2) was also lower than the prior year. On a constant currency basis3, revenue increased 6.1%2, gross profit decreased by 3.2%2 and operating profit was 26.9%1,2 lower.

 

Uncertainty impacted demand for executive recruitment in areas closely aligned with the public sector and financial services. A number of one-off costs, relating to the reduction of headcount in the executive search business, were also included in the UK operating profit.

 

Growth came from offices outside London. Gross profit in the UK regions and Scotland grew by 6.5%, while London declined by 8.3% and Dublin was 11.6% lower. However, following the vote for Brexit, gross profit from permanent placements in London improved by 24.5% in July compared to the prior year, which is encouraging as the business enters the second half.

 

Mainland Europe

 

Results from Europe were lifted by growth in the Nordics and Benelux with generally favourable currency tailwinds. In constant currency, operating profit was held back by investment in fee-earning headcount and management, to achieve critical mass in subscale locations, which offer the prospect of future growth. There were also one-off costs relating to the realignment of the German recruitment business following the disposal of Nash Technologies GmbH in the prior year.

 

Revenue in Mainland Europe increased by 20.9% to £218.6m (2015: £180.8m1), whilst gross profit increased by 12.1% to £17.8m (2015: £15.9m2) and operating profit increased by 6.6% to £2.5m (2015: £2.3m1,2). On a constant currency basis3, revenue increased by 10.5%2, gross profit increased by 3.1%2 and operating profit declined by 4.3%1,2.

 

The Benelux countries enjoyed relatively favourable trading conditions with an improvement in the Netherlands in particular, which reported strong gross profit growth of 27.3% (15.8%3). The majority of this growth was derived from new client wins in contract recruitment and managed services with a 57.9% increase in permanent recruitment.

 

In the Nordics, Sweden posted a 16.6% increase in gross profit (6.7%3), driven mainly by specialist technical recruitment while executive recruitment was subdued with a decline of 6.6%3. Growth also came from smaller offices in Denmark (+141.2%3) and Norway (+19.5%3), where the turnaround has been encouraging and the investment in management and fee-earners is beginning to pay off.

 

In Central Europe, revenue and operating profit were slightly lower than the prior year, despite the currency tailwinds. In Switzerland weak demand for permanent recruitment was linked to the strength of the currency, although tight control of costs resulted in a small improvement in the operating profit. In Germany, gross profit was 5.3%2,3 lower than the same period last year, due to shorter than expected temporary contract durations. This has resulted in lower contractor numbers partly mitigated by a strong increase in permanent revenue. The disposal of Nash Technologies GmbH required some limited restructuring with management re-aligned and back office synergies identified.

 

Rest of the World

 

Revenue from the Rest of the World (USA and Asia Pacific) increased by 8.4% to £33.8m (2015: £31.2m), whilst gross profit increased by 13.7% to £11.1m (2015: £9.7m). Operating profit was lower at 0.1m (2015: £0.7m) held back by a bad debt write off in the USA, weakness in China and an adverse currency variance in Vietnam. On a constant currency basis3, revenue increased by 0.3%, gross profit increased by 5.0% and operating profit would have been £0.1m.

 

Strong market conditions in the USA favoured permanent technology recruitment and executive search. The swing from temporary to permanent recruitment was significant, as client demand for software development skills particularly on the West Coast, continued to grow. Gross profit increased by 18.3% on the prior year, despite a decline in overall contractor numbers. Operating profit was 19.3% lower than the prior year partly due to a 7.3% increase in fee earners and record comparative figures.

 

In Asia Pacific, strong growth in executive recruitment revenue in Japan (+147.2%3) and in technology recruitment in Australia (112.4%3) offset weakness in Hong Kong, where it was down by 30.4%. Recruitment profits in Asia were £0.1m better than in the prior year, despite steady investment in the new Singapore office. The majority of the decline in profits came from Vietnam, where costs were impacted by adverse currency movements.

 

Board changes

 

After eleven years with the Group, Richard Ashcroft has notified the company of his intention to step down from the Board during the course of 2017. The Board will commence the process of finding a successor and Richard will remain in post until a smooth and orderly transition has been successfully completed.

 

Outlook

 

We are satisfied with the overall first half performance, which was in line with our expectations despite the challenges faced throughout the period.  As we begin the seasonally stronger second half of the year, UK conditions remain challenging but broadly stable while there are opportunities for growth in mainland Europe, the USA and Asia. Our focus is on productivity in territories where markets are not supportive, while maintaining and expanding capacity where we are confident good growth can be achieved.

 

With the balance sheet strengthened by the focus on the core business and strong cash generation, as well as an expectation that the UK market now appears more stable, the Board has increased the interim dividend and is confident that the Group is on track to achieve full year expectations.

 

 

 

Consolidated Income Statement

 

 

Notes

Unaudited

6 months ended

31 July 2016

£'000

Unaudited

6 months ended

31 July 2015

£'000

Audited

12 months ended

31 January 2016

£'000

Continuing operations

 

 

 

 

Revenue

4

377,653

328,722

676,524

Cost of sales

 

(330,369)

(284,310)

(586,236)

Gross profit

4

47,284

44,412

90,288

Total administrative expenses

 

(43,110)

                (39,136)

(80,136)

Operating profit before non-recurring items

4

4,174

5,276

10,152

 

 

 

 

 

Non-recurring items

12

-

(120)

(228)

Operating profit

 

4,174

5,156

9,924

Finance costs

 

(390)

(403)

(849)

Profit before tax

4

3,784

4,753

9,075

Income tax expense

5

(1,184)

(1,246)

(2,240)

Profit attributable to the equity holders of the parent Company

 

2,600

3,507

6,835

Discontinued operations

 

 

 

 

Loss from discontinued operations 

13

-

(707)

(14,439)

Profit/(loss) for the year attributable to equity holders of the parent Company

 

2,600

2,800

(7,604)

 

 

 

 

 

Earnings per share from continuing operations

 

 

 

 

- Basic

6

3.58p

4.82p

9.42p

- Diluted

6

3.58p

4.80p

9.38p

Earnings/(loss) per share from continuing and discontinued operations

- Basic

6

3.58p

3.85p

(10.48)p

- Diluted

6

3.58p

3.83p

(10.44)p

 

Consolidated Statement of Comprehensive Income 

 

 

Unaudited

6 months ended

31 July 2016

£'000

Unaudited

6 months ended

31 July 2015

£'000

Audited

12 months ended

31 January 2016

£'000

Profit/(loss) for the period

2,600

2,800

Items which may be subsequently reclassified into income:

 

 

 

Foreign currency translation differences

2,406

(3,070)

(220)

Other comprehensive expense for the period

2,406

(3,070)

(220)

Total comprehensive income/(expense) for the period attributable to the owners of the parent Company

5,006

(270)

(7,824)

 

                       

 Consolidated Balance Sheet

 

Notes

Unaudited

31 July 2016

£'000

Unaudited

31 July 2015

£'000

Audited

31 January 2016

£'000

ASSETS

 

 

 

 

Non-current assets

 

 

 

 

Property, plant and equipment

9

3,334

4,057

3,583

Intangible assets

9

53,811

50,546

50,688

Investment

 

253

215

238

Deferred tax assets

 

2,503

2,758

2,343

Loan receivable

13

1,937

-

1,755

 

 

61,838

57,576

58,607

Current assets

Cash and cash equivalents

7

10,935

                9,787

18,506

Trade and other receivables

 

136,325

137,268

127,331

 

 

147,260

147,055

145,837

Total assets

 

209,098

204,631

204,444

 

 

 

 

 

LIABILITIES

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

 

(131,333)

(112,078)

(129,728)

Current income tax liabilities

 

(1,614)

(1,646)

(1,486)

Borrowings

7

(17,754)

(25,463)

(18,336)

Deferred consideration

 

-

(1,855)

-

Provisions for liabilities and charges

 

(115)

(145)

(145)

 

 

(150,816)

(141,187)

(149,695)

Net current (liabilities) / assets

 

(3,556)

5,868

(3,858)

Non-current liabilities

 

 

 

 

Deferred consideration

 

(596)

(419)

(472)

Deferred tax liabilities

 

(159)

(271)

(159)

 

 

(755)

(690)

(631)

Total liabilities

 

(151,571)

(141,877)

(150,326)

Net assets

 

57,527

62,754

54,118

 

 

 

 

 

Capital and reserves attributable to equity shareholders

 

 

 

 

Share capital

 

3,673

3,673

3,673

Share premium

 

8,425

8,425

8,425

Fair value and other reserves

 

15,079

15,079

15,079

Own shares held

 

(914)

(1,032)

(1,032)

Cumulative translation reserve

 

4,377

(879)

1,971

Retained earnings

 

26,887

37,488

26,002

Shareholders' funds and total equity

 

57,527

62,754

54,118

 

 Consolidated Statement of Changes in Equity

 

 

 

 

Share

capital

 

 

 

Share premium

 

 

 

Fair value and other reserves

 

 

 

Own shares held

 

 

 

Cumulative translation reserve

 

 

 

Retained earnings

 

 

          

           Total

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

1 February 2015

3,673

8,425

15,079

(1,032)

2,191

36,262

64,598

Profit for the period

-

-

-

-

-

2,800

2,800

Currency translation adjustments

-

-

-

-

(3,070)

-

(3,070)

Total recognised income and (expense) for the period

-

-

-

-

(3,070)

2,800

(270)

Dividends paid

-

-

-

-

-

(1,574)

(1,574)

31 July 2015

3,673

8,425

15,079

(1,032)

(879)

37,488

62,754

 

 

 

1 August 2015

3,673

8,425

15,079

(1,032)

(879)

37,488

62,754

Profit for the period

-

-

-

-

-

(10,404)

(10,404)

Currency translation adjustments

-

-

-

-

2,850

-

2,850

Total recognised income and (expense) for the period

-

-

-

-

2,850

(10,404)

(7,554)

Dividends paid

-

-

-

-

-

(1,082)

(1,082)

31 January 2016

3,673

8,425

15,079

(1,032)

1,971

26,002

54,118

 

 

 

1 February 2016

3,673

8,425

15,079

(1,032)

1,971

26,002

54,118

Profit for the period

-

-

-

-

-

2,600

2,600

Currency translation adjustments

-

-

-

-

2,406

-

2,406

Total recognised income for the period

-

-

-

-

2,406

2,600

5,006

Employee share option and bonus plan

-

-

-

118

-

-

118

Dividends paid

-

-

-

-

-

(1,715)

(1,715)

31 July 2016

3,673

8,425

15,079

(914)

4,377

26,887

57,527

 

 Consolidated Cash Flow Statement

 

Notes

Unaudited

6 months ended

31 July 2016

£'000

Unaudited

6 months ended

31 July 2015

£'000

Audited

12 months ended

31 January 2016

£'000

Profit before taxation (before non-recurring items)

 

3,784

4,500

9,303

Adjustments for:

 

 

 

 

-     Discontinued operations trading losses

 

-

-

(838)

-     Depreciation

 

622

739

1,459

-     Amortisation

 

35

37

75

-     Loss on disposal of fixed assets

 

-

-

26

-     Finance costs

 

392

403

849

-     Non-recurring items

12

-

(435)

(69)

Operating cash flows before changes in working capital

 

4,833

5,244

10,805

Changes in working capital (excluding the effects of acquisition and exchange differences on consolidation)

-     Decrease/(increase) in trade and other receivables

 

173

(24,347)

(7,016)

-     (Decrease)/increase in trade and other payables

 

(1,542)

8,299

12,823

-     (Decrease) in provisions for liabilities and charges

 

(30)

(269)

(262)

Cash inflow/(outflow) from operating activities

 

3,434

(11,073)

16,350

Income tax paid

 

(1,906)

(2,566)

(3,348)

Net cash generated from/(absorbed by) operating activities

1,528

 

(13,639)

13,002

Cash flows from investing activities

 

 

 

 

Purchases of property, plant and equipment

9

(462)

(1,191)

(1,972)

Capitalised software development costs

9

-

(1,383)

(2,108)

Disposal of subsidiary undertakings

13

(5,991)

-

(2,690)

Settlement of deferred consideration

 

-

-

(2,070)

Net cash used in investing activities

 

(6,453)

(2,574)

(8,840)

Cash flows from financing activities

 

 

 

 

Proceeds from employee share options exercise

 

60

-

-

Dividends paid to group shareholders

8

(1,715)

(1,574)

(2,656)

Interest paid

 

(392)

(403)

(849)

(Decrease)/increase in borrowings

 

(1,450)

9,373

(898)

 Net cash generated from/(used in) financing activities

 

(3,497)

7,396

(4,403)

 

 

 

 

 

(Decrease)/increase in cash and cash equivalents

 

(8,422)

(8,817)

(241)

Cash and cash equivalents at the beginning of the period

 

18,506

18,996

18,996

Exchange gain/(loss) on cash and cash equivalents

 

851

(392)

(249)

Cash and cash equivalents at the end of the period

 

10,935

9,787

18,506

 

 

 

 Notes to the Unaudited Condensed Consolidated Interim Financial Statements

 

 

1. Corporate information

 

Harvey Nash Group plc ("the Company") and its subsidiaries (together "the Group") is a leading provider of specialist recruitment and outsourcing solutions. The Group has offices in the United Kingdom, Europe, United States, Hong Kong, Australia, Japan, Singapore and Vietnam.

 

The Company is a public listed company incorporated in the United Kingdom. Its registered address is 110 Bishopsgate, London, EC2N 4AY and its primary listing is on the London Stock Exchange.

 

The condensed consolidated interim financial information for the six months ended 31 July 2016 was approved for issue on

30 September 2016.

 

 

2. Risk management

 

The Board reviews the key risks facing the business regularly. Outlined below are the main risks that could potentially impact the Group's operating and financial performance, which remain the same as those reported on pages 16-17 of the consolidated financial statements of the Group for the year ended 31 January 2016:

 

 

Risk

Description

Mitigation

Change in risk level in HY16

Risk level after mitigation

Brand damage

 

 

The Group's reputation could be significantly impacted by a service failing or individual action with viral social media exposure. Adverse exposure may impact sales.

The Group protects its reputation for professionalism and quality through its staff recruitment and development practices. The Group utilises high quality external professional advice to reduce risk in this area. Robust internal controls ensure high levels of compliance in relation to legal and contractual risks and obligations.

-

-

Client retention

 

 

The Group is not overly reliant on any one client, however there is a risk that business performance may be impacted if a number of clients were lost.

The Group's client centric strategy places great emphasis on the client and the retention of the relationship. A diversified geographical footprint and sector focus also reduces the risk of key client losses affecting the overall Group due to adverse country or sector specific conditions.

-

-

Cyber risk

 

 

The Group operates with a number of complex systems which maintain confidential data.  The risk is perceived to have increased due to the higher number of cyber-attacks in the UK.

The Group has cyber and data protection and security policies in place and regularly reviews the effectiveness of these policies. In the current year we have focused on achieving ISO 27001 compliance throughout the Group whilst working on other recognised cyber and data security enhancements to combat this.

-

-

Economic environment

 

 

The performance of the Group is impacted by the economic cycles of the markets of the countries in which it operates. The volatility of the markets in China and the UK referendum increased the uncertainty in the markets in which we operate.

The Group developed a broad portfolio of services appropriate to different stages of the economic cycle and a continued focus on annuity revenue streams providing enhanced visibility and improving client retention rates during downturns. The risk presented by the economic environment has increased in the period due to the announcement of the UK's departure from the EU.  

-

Risk

Description

Mitigation

Change in risk level in HY16

Risk level after mitigation

Foreign exchange

 

 

The global nature of the Group's operations naturally gives rise to exposure to a basket of currency movements, both in actual cash gains / losses and translation differences. In the current period year, the Group's results have been impacted by the weakening of GBP against the Euro and Dollar.

The majority of the Group's costs are aligned with revenues in single currencies. Exposure on equity investments in overseas subsidiaries is managed by holding foreign currency borrowings.  Cash gains or losses are limited through active management of working capital and appropriate accounting policies and financial controls. Variances on translation arise as part of the strategy of increasing international exposure and are not actively hedged. Significant fluctuations occurred in exchange rates following the EU referendum but have not materially impacted the Group as mitigating actions were taken.

-

Margin pressure

 

 

Increased pressure particularly on temporary recruitment margins in maturing markets facilitated by digital dynamics and use of social media.

The Group goes to great lengths to differentiate itself and deliver a high quality service to clients. The Group's balance of permanent and contracting revenues creates a sustainable mix of one-off higher profitability income alongside annuity revenues which builds sustainable profits in competitive markets.

-

-

Regulatory environment

 

The recruitment industry is governed by an increasing level of compliance, which varies from country to country and market to market. In the current year, regulatory changes in the UK and Netherlands have increased the risk.

The Group utilises high quality external professional advice to reduce risk in this area. Robust internal controls ensure high levels of compliance in relation to legal and contractual risks and obligations.

-

-

Retention and  succession

 

 

Delivery of the Group's growth strategy is reliant on the recruitment, development and retention of high quality managers and consultants. Failure to attract and retain high calibre individuals with the appropriate skill set could adversely affect the Group's performance.

The Group's Head of Talent continually evolves the recruitment and retention plans of the Group. As set out in the Remuneration Report, an element of the Executive Directors remuneration is linked to retention of key employees. Senior management have deferred bonus arrangements and are often rewarded in equity. The senior management team that comprised 82 key business managers, lead consultants and executive team meet annually to discuss strategy. The Group also has an established talent academy and global leadership programme.

-

-

Technological development and digital innovation

 

 

The risk of disruption to the recruitment sector through digital innovation is mainly considered to be the growing use of social media to source candidates.

The Group has invested time both at Board level and in the operational context to design suitable strategies to capture the benefits of the current disruption and mitigate potential erosion of the Group's market share. The Group has also invested significantly in developing its in-house expertise in utilising social media to accelerate sourcing and recruiting and updated its CRM for 50% of the business.

-

-

                 

3. Accounting policies

 

Basis of preparation

This condensed consolidated interim financial information for the six months ended 31 July 2016 has been prepared in accordance with IAS 34 'Interim financial reporting' and the disclosure and transparency directives of the FCA. It does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006 as it does not include all the information required for full statutory accounts. The interim financial statements should be read in conjunction with the statutory accounts for the year ended 31 January 2016, which were prepared in accordance with IFRS as adopted by the European Union and were approved by the Board of Directors on 27 April 2016 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. This condensed consolidated interim financial information has not been reviewed or audited by the Group's auditors Deloitte LLP.

 

Significant accounting policies

Except as noted below, the same accounting policies, methods of computation and presentation have been applied as those set out in the Harvey Nash Group plc Annual Report for the year ended 31 January 2016. The accounting policies are drawn up in accordance with International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) as endorsed by the European Union.

 

New and amended standards adopted by the Group

There are no new standards or IFRIC interpretations that were effective during the period that significantly affect this interim financial information.

 

Critical accounting judgements and key sources of estimation uncertainty

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

 

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 January 2016 with the exception of those related to the discontinued operations. As a result the capitalisation of software development costs and accounting for the disposal of subsidiaries are not significant judgements in the current period.

 

Going concern basis 

The Group meets its day-to-day working capital requirements through its bank facilities. The current economic conditions continue to create uncertainty particularly over (a) the level of demand for the Group's services; and (b) the availability of bank finance for the foreseeable future. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current facilities. After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its consolidated interim financial statements.

 

 

   

4. Segment information

 

Decisions about analysis of segment information are approved by the main Board. There have been no changes since the year ended 31 January 2016 in the way the Group Board analyses segmental information. Services provided by each reportable segment are permanent recruitment, contracting and outsourcing. The Group Board analyses segmental information as follows:

 

Revenue

Continuing operations

Unaudited

6 months ended 31 July 2016

£'000

Unaudited

6 months ended 31 July 2015

£'000

Audited

12 months ended

31 January 2016

£'000

United Kingdom & Ireland

125,197

116,732

233,404

Mainland Europe

 

218,640

180,805

377,985

 

Benelux

182,103

144,700

305,095

 

Nordics

9,101

7,594

16,365

 

Central Europe

27,436

28,511

56,525

Rest of World

 

33,816

31,185

65,135

 

United States

28,609

26,914

54,578

 

Asia Pacific

5,207

4,271

10,557

Revenue from continuing operations

377,653

328,722

676,524

           

Discontinued operations

United Kingdom & Ireland

-

197

106

Mainland Europe (Central Europe)

-

8,113

12,990

Total Revenue

 

377,653

337,032

689,620

         

 

 

Gross profit

Continuing operations

Unaudited

6 months ended

31 July 2016

£'000

Unaudited

6 months ended

31 July 2015

£'000

Audited

12 months ended

31 January 2016

£'000

United Kingdom & Ireland

18,420

18,801

37,048

Mainland Europe

 

17,807

15,886

32,614

 

Benelux

6,996

5,942

12,232

 

Nordics

6,360

5,482

11,403

 

Central Europe

4,451

4,462

8,979

Rest of World

 

11,057

9,725

20,626

 

United States

8,526

7,204

14,774

 

Asia Pacific

2,531

2,521

5,852

Gross Profit from continuing operations

47,284

44,412

90,288

           

Discontinued operations

United Kingdom & Ireland

-

183

92

Mainland Europe (Central Europe)

-

1,690

2,997

Total Gross Profit

 

47,284

46,285

93,377

         

 

 

4. Segment information (continued)

 

Operating profit and profit before tax

Continuing operations

Unaudited

6 months ended 31 July 2016

£'000

Unaudited

6 months ended 31 July 2015

£'000

Audited

12 months ended

31 January 2016

£'000

United Kingdom & Ireland

1,620

2,134

3,461

Mainland Europe

 

2,487

2,334

4,956

 

Benelux

1,893

1,798

3,608

 

Nordics

187

107

385

 

Central Europe

407

429

963

Rest of World

 

67

688

1,507

 

United States

609

756

1,386

 

Asia Pacific

(542)

(68)

121

Operating profit from continuing operations

4,174

5,156

9,924

Finance income

 

 

-

Finance cost

(390)

(403)

(849)

Profit before tax

3,784

4,753

9,075

           

Discontinued operations

United Kingdom & Ireland

-

(131)

(418)

Mainland Europe (Central Europe)

-

(557)

(14,021)

Total Operating Profit before tax

3,784

4,065

5,364

 

 

Depreciation

Continuing operations

Unaudited

6 months ended 31 July 2016

£'000

Unaudited

6 months ended 31 July 2015

£'000

Audited

12 months ended

31 January 2016

£'000

United Kingdom & Ireland

301

313

374

Mainland Europe

 

116

95

199

 

Benelux

61

57

114

 

Nordics

31

21

46

 

Central Europe

24

17

39

Rest of World

 

205

186

637

 

United States

111

97

49

 

Asia Pacific

94

89

588

Total depreciation

622

594

1,210

           

Discontinued operations

United Kingdom & Ireland

-

-

-

Mainland Europe (Central Europe)

-

145

249

Total Operating Profit

622

739

1,459

 

5. Taxation

 

Taxation for the six-month period is charged at 31.3% (2015: 31.1%), representing the best estimate of the average annual effective tax rate expected for the full year, applied to the pre-tax income of the six-month period.

 

 

6. Earnings per share

 

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year, excluding those held in the employee share trust, which are treated as cancelled.

 

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group's potential ordinary shares are comprised of share options granted to employees where the exercise price is less than the average price of the Company's ordinary shares during the period.

 

From continuing operations

 

 

Unaudited

6 months ended

31 July 2016

Unaudited

6 months ended

31 July 2015

Audited

12 months ended

31 January 2016

Profit for the period £'000

 

2,600

3,507

6,835

Weighted average number of shares

 

72,588,365

72,754,076

72,552,809

Basic earnings per share

 

3.58p

4.82p

9.42p

 

 

 

 

Unaudited

6 months ended

31 July 2016

Unaudited

6 months ended

31 July 2015

Audited

12 months ended

31 January 2016

Profit for the period £'000

 

2,600

3,507

6,835

Weighted average number of shares

 

72,588,365

72,754,076

72,552,809

Effect of dilutive securities

 

9,481

357,275

285,596

Adjusted weighted average number of shares

 

72,597,846

73,111,351

72,838,405

Diluted earnings per share

 

3.58p

4.80p

9.38p

 

 

From continuing and discontinued operations

 

 

 

Unaudited

6 months ended

31 July 2016

Unaudited

6 months ended

31 July 2015

Audited

12 months ended

31 January 2016

Profit/(loss) for the period £'000

 

2,600

2,800

(7,604)

Weighted average number of shares

 

72,588,365

72,754,076

72,552,809

Basic earnings/(loss) per share

 

3.58p

3.85p

(10.48)p

 

  

 

6. Earnings per share (continued)

 

 

 

Unaudited

6 months ended

31 July 2016

Unaudited

6 months ended

31 July 2015

Audited

12 months ended

31 January 2016

Profit/(loss) for the period £'000

 

2,600

2,800

(7,604)

Weighted average number of shares

 

72,588,365

72,754,076

72,552,809

Effect of dilutive securities

 

9,481

357,275

285,596

Adjusted weighted average number of shares

 

72,597,846

73,111,351

72,838,405

Diluted earnings/(loss) per share

 

3.58p

3.83p

(10.44)p

 

 

7. Analysis of changes in net funds

 

 

1 February 2016

£'000

Unaudited

cash flow

 £'000

Unaudited

foreign exchange movements £'000

Unaudited

31 July

 2016

£'000

Cash and cash equivalents

18,506

(8,422)

851

10,935

Borrowings

(18,336)

(1,450)

2,032

(17,754)

Net funds/(debt)

170

(9,872)

2,883

(6,819)

 

Net funds comprise cash and cash equivalents less invoice discounting and overdrafts utilised.

 

 

8. Dividends

 

The Group paid a final dividend of 2.360p per share on 8 July 2016 to shareholders on the register as at 17 June 2016 (2015: final dividend of 2.171p per share was paid on 10 July 2015).

 

 

9. Non-Current Assets

 

The Group made cash purchases of property, plant and equipment of £0.5m (2015: £1.2m) in the period.

 

Intangibles increased £3.3m on the prior year due to the devaluation of sterling after the disposal of capitalised software costs related to discontinued operations, the value of which was £1.4m at 31 July 2015.

 

 

10. Capital commitments

 

The Group had no capital commitments at 31 July 2016 (2015: £nil).

 

 

11. Related party transactions

 

In the six month period to 31 July 2016, there have been no related party transactions or changes in the related party transactions as described in the January 2016 Annual Report.

 

 

12. Non-recurring items

 

There were no non-recurring items in the half year ended 31 July 2016. In the year ended 31 January 2016, non-recurring costs amounted to £0.2m, which predominantly related to the settlement of deferred consideration for the Talent-IT acquisition.

 

12. Non-recurring items (continued)

 

Deferred consideration of £0.2m had been recognised as at 31 January 2015 in respect of the estimated consideration due on completion of the earn-out period, which commenced on acquisition of Talent-IT. The non-recurring element represents the excess consideration payable over the previously recognised deferred consideration.

 

 

13. Discontinued operations

 

Nash Technologies

On 6 December 2015, the Group entered into a sale agreement to dispose of the German telecommunications outsourcing business Nash Technologies GmbH ("NT") and its two fully owned subsidiaries, Nash Technologies Stuttgart GmbH ("NTS") and Nash Innovations GmbH ("NI"), "NT Group". On the disposal date, full control passed to the acquirer.

 

There are no results from discontinued operations in the six months ended 31 July 2016. Cash outflows in the period relating to the disposal of Nash Technologies were £6.0m, of which £1.9m (€2.3m) related to payment of a loan receivable from Nash Technologies included within non-current assets.

 

Further detail in relation to the disposal can be found in the 2016 Annual Report.

 

 

14. Post balance sheet events

 

There were no post balance sheet events requiring disclosure.

                                                             

 

Statement of Directors' Responsibilities

 

The directors confirm that, to the best of their knowledge, these condensed consolidated interim financial statements have been prepared in accordance with IAS 34 as adopted by the European Union. The interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

 

  • an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
  • material related-party transactions in the first six months of the financial year and any material changes in the related party transactions described in the last Annual Report.

 

The directors of Harvey Nash Group plc are listed in the Harvey Nash Group plc Annual Report for 31 January 2016. A list of current directors is maintained on the Harvey Nash Group plc website: www.harveynash.com

 

The directors are also responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

 

By order of the Board.

 

 

 

 

Richard Ashcroft

Group Company Secretary

29 September 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cautionary statement

 

This Half Year Report (the "Report") has been prepared in accordance with the Disclosure Rules and Transparency Rules of the UK Financial Conduct Authority and is not audited. No representation or warranty, express or implied, is or will be made in relation to the accuracy, fairness or completeness of the information or opinions contained in this Report. Statements in this Report reflect the knowledge and information available at the time of its preparation. Certain statements included or incorporated by reference within this Report may constitute "forward-looking statements" in respect of the Group's operations, performance, prospects and/or financial condition. By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions and actual results or events may differ materially from those expressed or implied by those statements. Accordingly, no assurance can be given that any particular expectation will be met and reliance shall not be placed on any forward-looking statement. Additionally, forward-looking statements regarding past trends or activities shall not be taken as a representation that such trends or activities will continue in the future. The information contained in this Report is subject to change without notice and no responsibility or obligation is accepted to update or revise any forward-looking statement resulting from new information, future events or otherwise. Nothing in this Report shall be construed as a profit forecast. This Report does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase or subscribe for any shares in the Company, nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or commitment or investment decisions relating thereto, nor does it constitute a recommendation regarding the shares of the Company or any invitation or inducement to engage in investment activity under section 21 of the Financial Services and Markets Act 2000. Past performance cannot be relied upon as a guide to future performance.

 

 

1  Results for 31 July 2015 include the impact of non-recurring items.

2 Results for 31 July 2015 are stated for continuing operations.

3 2016 results reported on a constant currency basis at 2015 rates.

 


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