TIDMHVN
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 GBP377.7m GBP328.7m + 14.9%
Gross profit GBP47.3m GBP44.4m + 6.5%
Operating profit(1) GBP4.2m GBP5.2m - 19.0%
Profit before tax(1) GBP3.8m GBP4.8m - 20.4%
Earnings per share(1) 3.58p 4.82p - 25.7%
-------------------------------- --------------- --------------- ----------
Total operations
-------------------------------- --------------- --------------- ----------
Statutory profit before tax(1) GBP3.8m GBP4.0m - 6.5%
Earnings per share(1) 3.58p 3.85p - 7.0%
Interim dividend 1.565p 1.490p + 5.0%
Net borrowings GBP6.8m GBP15.7m + GBP8.9m
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 GBP15.2m with net borrowings reduced by GBP8.9m 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) Tel: 020 7333
and Richard Ashcroft 2635
(CFO)
Hudson Sandler Michael Sandler / Tel: 020 7796
Cat Valentine 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
GBP377.7m (2015: 328.7m(2) ), 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
GBP47.3m (2015: GBP44.4m(2) ), reflecting a change in the mix of
revenue. On a constant currency basis the increase was 0.8%(3)
.
Operating profit of GBP4.2m 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 GBP3.8m (2015: GBP4.0m) was
GBP0.2m 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
GBP1.2m (2015: GBP1.2m(2) ), 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
GBP57.5m compared to 31 January 2016 (GBP54.1m). Intangible fixed
assets increased by 6.5% to GBP53.8m (2015: GBP50.5m) 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 GBP8.9m to GBP6.8m (2015: GBP15.7m),
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 GBP112.8m (2015:
GBP106.6m), through a combination of the appreciation of
non-sterling debtors by GBP15.8m, a reduction of GBP9.6m linked to
improved cash collection and the disposal of Nash Technologies
(2015: GBP3.7m). Trade and other payables increased to GBP131.3m
(2015: GBP112.1m), due to the appreciation of non-sterling payables
and the favourable timing of contractor payments. Contingent
consideration reduced by GBP1.7m to GBP0.6m (2015: GBP2.3m), 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 GBP1.5m (2015: outflow GBP13.6m), a positive
reversal of GBP15.1m, 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 GBP1.4m in the period, compared to the outflow of
GBP16.3m in the prior year.
Cash absorbed by investing activities increased by GBP3.9m to
GBP6.5m (2015: GBP2.6m), as deferred restructuring commitments
arising out of the prior year of GBP4.0m were settled and a loan of
GBP2.0m advanced in accordance with the agreement to dispose of
Nash Technologies GmbH. This outflow was mitigated by a reduction
of GBP0.7m in capital expenditure across the Group to GBP0.5m
(2015: GBP1.2m), which mainly related to routine technology and
software infrastructure. Tax paid was GBP1.9m, 25.7% lower than the
prior year (2015: GBP2.6m), with reduced payments in the UK and
parts of Europe.
The overall inflow of cash resulted in the Group's net
borrowings reducing by GBP8.9m to GBP6.8m at 31 July 2016, compared
to the same date in the prior year (2015: GBP15.7m).
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 GBP125.2m (2015: GBP116.7m(2) ). Gross profit
of GBP18.4m was lower (2015: GBP18.8m(2) ) due to the lower levels
of permanent recruitment. Accordingly operating profit of GBP1.6m
(2015: GBP2.1m(1,2) ) was also lower than the prior year. On a
constant currency basis(3) , 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 GBP218.6m
(2015: GBP180.8m(1) ), whilst gross profit increased by 12.1% to
GBP17.8m (2015: GBP15.9m(2) ) and operating profit increased by
6.6% to GBP2.5m (2015: GBP2.3m(1,2) ). On a constant currency
basis(3) , 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 GBP33.8m (2015: GBP31.2m), whilst gross profit
increased by 13.7% to GBP11.1m (2015: GBP9.7m). Operating profit
was lower at 0.1m (2015: GBP0.7m) 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 basis(3) , revenue increased by
0.3%, gross profit increased by 5.0% and operating profit would
have been GBP0.1m.
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 GBP0.1m 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 Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 July 31 July 31 January
2016 2015 2016
GBP'000 GBP'000 GBP'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 Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 July 31 July 31 January
2016 2015 2016
GBP'000 GBP'000 GBP'000
-------------------------------------- ---------- ---------- ------------
Profit/(loss) for the period 2,600 2,800 (7,604)
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 Unaudited Audited
31 July 31 July 31 January
2016 2015 2016
GBP'000 GBP'000 GBP'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 Share Fair Own Cumulative Retained Total
capital premium value shares translation earnings
and held reserve
other
reserves
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 July 31 July 31 January
2016 2015 2016
GBP'000 GBP'000 GBP'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 60 - -
options exercise
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 Risk level after
in HY16 mitigation
-------------------- ---------------------- ---------------------- ----------------------- -----------------------
Brand damage The Group's The Group protects - -
reputation could be its reputation for
significantly professionalism and
impacted by a service quality through its
failing or individual staff recruitment
action with viral and development
social media practices. The Group
exposure. Adverse utilises high quality
exposure may impact external professional
sales. 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 The Group's client - -
overly reliant on any centric strategy
one client, however places great emphasis
there is a risk that on the client and the
business performance retention
may be impacted if a of the relationship.
number of clients A diversified
were lost. 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 The Group has cyber - -
with a number of and data protection
complex systems which and security policies
maintain confidential in place and
data. The regularly reviews
risk is perceived to the effectiveness of
have increased due to these policies. In
the higher number of the current year we
cyber-attacks in the have focused on
UK. achieving ISO
27001 compliance
throughout the Group
whilst working on
other recognised
cyber and data
security
enhancements to
combat this.
-------------------- ---------------------- ---------------------- ----------------------- -----------------------
Economic The performance of The Group developed a -
environment the Group is impacted broad portfolio of
by the economic services appropriate
cycles of the markets to different stages
of the countries of the economic
in which it operates. cycle and a continued
The volatility of the focus on annuity
markets in China and revenue streams
the UK referendum providing enhanced
increased visibility and
the uncertainty in improving
the markets in which client retention
we operate. 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 Risk level after
in HY16 mitigation
---------------------- ---------------------- ---------------------- ----------------------- ---------------------
Foreign exchange The global nature of The majority of the -
the Group's operations Group's costs are
naturally gives rise to aligned with revenues
exposure to a basket of in single currencies.
currency movements, Exposure
both in actual cash on equity investments
gains / losses and in overseas
translation subsidiaries is
differences. In the managed by holding
current period year, foreign currency
the Group's results borrowings.
have been impacted by Cash gains or losses
the weakening of GBP are limited through
against active management of
the Euro and Dollar. 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 The Group goes to - -
particularly on great lengths to
temporary recruitment differentiate itself
margins in maturing and deliver a high
markets facilitated quality service
by digital dynamics and to clients. The
use of social media. 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 The recruitment The Group utilises - -
environment industry is governed high quality external
by an increasing professional advice
level of compliance, to reduce risk in
which varies from this area.
country to country Robust internal
and market to market. controls ensure high
In the current year, levels of compliance
regulatory changes in in relation to legal
the UK and contractual
and Netherlands have risks and
increased the risk. obligations.
---------------------- ---------------------- ---------------------- ----------------------- ---------------------
Retention and Delivery of the The Group's Head of - -
succession Group's growth Talent continually
strategy is reliant evolves the
on the recruitment, recruitment and
development and retention plans of
retention the
of high quality Group. As set out in
managers and the Remuneration
consultants. Failure Report, an element of
to attract and retain the Executive
high calibre Directors
individuals remuneration
with the appropriate is linked to
skill set could retention of key
adversely affect the employees. Senior
Group's performance. 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 The risk of The Group has - -
development and disruption to the invested time both at
digital innovation recruitment sector Board level and in
through digital the operational
innovation is mainly context to design
considered suitable
to be the growing use strategies to capture
of social media to the benefits of the
source candidates. 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
Unaudited Unaudited Audited
6 months ended 31 July 2016 6 months ended 31 July 2015 12 months ended
GBP'000 GBP'000 31 January 2016
Continuing operations GBP'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
Unaudited Unaudited Audited
6 months ended 6 months ended 12 months ended
31 July 2016 31 July 2015 31 January 2016
Continuing operations GBP'000 GBP'000 GBP'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
Unaudited Unaudited Audited
6 months ended 31 July 2016 6 months ended 31 July 2015 12 months ended
GBP'000 GBP'000 31 January 2016
Continuing operations GBP'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
Unaudited Unaudited Audited
6 months 6 months 12 months
ended 31 ended 31 ended
July 2016 July 2015 31 January
GBP'000 GBP'000 2016
Continuing operations GBP'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 Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 July 31 July 31 January
2016 2015 2016
Profit for the period
GBP'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 Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 July 31 July 31 January
2016 2015 2016
------------------------------- ----------- ----------- ------------
Profit for the period
GBP'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 Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 July 31 July 31 January
2016 2015 2016
Profit/(loss) for the
period GBP'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 Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 July 31 July 31 January
2016 2015 2016
------------------------------- ----------- ----------- ------------
Profit/(loss) for the
period GBP'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 Unaudited Unaudited Unaudited
2016 cash flow foreign 31 July
GBP'000 GBP'000 exchange 2016
movements GBP'000
GBP'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 GBP0.5m (2015: GBP1.2m) in the period.
Intangibles increased GBP3.3m 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
GBP1.4m at 31 July 2015.
10. Capital commitments
The Group had no capital commitments at 31 July 2016 (2015:
GBPnil).
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 GBP0.2m, which predominantly related to the settlement
of deferred consideration for the Talent-IT acquisition.
12. Non-recurring items (continued)
Deferred consideration of GBP0.2m 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 GBP6.0m, of which GBP1.9m
(EUR2.3m) 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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