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Unaudited Half Year Results for the six months ended 31 July 2015

Harvey Nash, the global professional services group, announces its Half Year results, which show double-digit growth in underlying operating profit on a constant currency basis and are in line with management's expectations.

Financial Results

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Operational highlights

  • Strong growth in underlying gross profit of 6.1% (9.4% on a constant currency basis1)
  • Significant improvement in gross margin to 13.7% (2014: 12.3%) - up 12.1%
  • Increase in adjusted operating profit2 of 7.3% despite foreign exchange headwinds (12.6% on a constant currency basis1)
  • Interim dividend increased by 9.6% to 1.49p (2014: 1.36p)
  • Cash outflows due mainly to expansion of working capital
  • Outstanding performance in the USA with gross profit increased by 34.8% and operating profit by 60.9%
  • Excellent growth in net fee income in Asia - up 50.2%
  • Good performance from UK & Ireland with gross profit up by 7.1% and operating profit up by 9.5%
  • Underlying results in Mainland Europe were broadly stable on a constant currency basis1
  • Group fee-earner headcount rose by 9.6% - investment in growth in the UK, USA and Asia

Albert Ellis, Chief Executive Officer, said:

“The Group has delivered a strong financial performance, in the USA, UK and Asia with double-digit growth in underlying operating profit1 on a constant currency basis.

“Strategic investment in the USA and a favourable market has driven growth in operating profit of 60.9% and expansion in Asia has delivered an increase of 50.2% in net fees in those businesses. In the UK, strong demand for software developers accelerated growth with net fees improving by 18.0% on the prior year. In Europe, despite currency headwinds, steady demand for temporary and contract labour continued to drive solid improvement in operating profit1.”


Harvey Nash
Albert Ellis (CEO) and
Richard Ashcroft (CFO)
Tel: 020 7333 2635

Hudson Sandler Cat Valentine / Jessica Reid Tel: 020 7796 4133
1 On a constant currency basis which is calculated by re-translating current year figures at prior year rates.
2 Stated before non-recurring costs of £0.4m relating to the strategic review of the German outsourcing business.


Financial results

The Group has reported strong results for the six months ended 31 July 2015 with double-digit growth in underlying adjusted operating profit on a constant currency basis.

Revenue increased by 0.5% on a constant currency basis, although there was a slight decline in reported currency of 5.3% to £337.0m due to the strength of Sterling. Gross profit rose by 6.1% (9.4% on a constant currency basis) to £46.3m (2014: £43.6m), partly reflecting the 50.2% increase in the Group’s Asian businesses.

Adjusted operating profit was 7.3% higher at £4.9m (2014: £4.6m) and 12.6% higher on a constant currency basis due in part to excellent performances from the UK and the USA, with growth in demand for both contract and permanent technology staff continuing.

Non-recurring items of £0.4m (2014: £nil) in the period related to advisory fees and other costs in respect of the ongoing strategic review of the German outsourcing business.

Adjusted basic earnings per share rose by 6.3%, to 4.42p (2014: 4.16p), as the tax rate remained steady. The tax charge for the period was £1.3m (2014: £1.2m) with an unchanged effective rate of tax before non-recurring items of 28.1%.

Balance Sheet

Euro related foreign exchange variances affected net assets, which were 2.3% lower at £62.8m (2014: £64.2m). High levels of capital investment on infrastructure, new databases and software licences lifted tangible fixed assets by 10.2% to £4.1m (2014: £3.7m).

Intangible fixed assets increased to £2.5m from £0.7m in the prior year, representing the ongoing software development in relation to a vehicular small cell solution developed for the automotive industry in Germany.

Good growth in contracting in the USA, UK & Benelux has absorbed more cash than normal at the seasonal peak. This impact was exacerbated by a five-week billing month ending on the half-year date, 31 July 2015, compared to four weeks in the prior year. Accordingly, trade and other receivables were higher at £137.3m (2014: £133.5m), despite lower revenue and improved debtor days (2015: 45.6 vs. 2014: 46.1). Trade and other payables decreased by 4.6% to £112.1m (2014: £117.5m), mainly due to the unfavourable timing of certain contractor payrolls. As a result, net borrowing at 31 July 2015 was £15.7m (2014: £4.3m).

The deferred tax asset increase of £0.1m to £2.8m over the prior year was due to short-term timing differences. Contingent consideration increased by £0.2m to £2.3m, mainly due to deferred consideration for the Group’s acquisition in Japan, Beaumont KK. The weakness of the Euro reduced slightly the Sterling value of deferred consideration in relation to the Belgium acquisition, Talent-IT BVBA, which was settled during August 2015.

Cash Flow

The Group’s cash generation was affected by three key items at 31 July 2015: growth in working capital driven by higher contractor numbers and seasonal swings, increased capital expenditure and higher tax payments. Other than with respect to ongoing investment in software development referred to above, the Group’s cash is expected to improve in the second half, as working capital swings substantially reverse and catch-up tax payments and capital expenditure flows normalise.

Cash generated from operating activities during the period, before movements in working capital, was £5.2m (2014: £5.4m). In the six months to 31 July 2015, there was a net increase in working capital of £16.3m (2014: £7.9m).

Capital expenditure in the period totalled £1.2m (2014: £0.7m). This mainly relates to modernisation and updating of the Group’s technology platforms and databases, technology and office infrastructure spend and software licences in Vietnam. An amount totalling £1.4m (2014: £0.7m) was capitalised in relation to software development for a vehicular small cell solution in Germany.

Tax paid in the period was £2.6m (2014: £1.3m). The increase was due to payment of prior year taxes in Belgium and Germany.

Dividend payments of £1.6m (2014: £1.4m) and net interest paid of £0.4m (2014: £0.3m) resulted in an overall net cash outflow in the six months to 31 July 2015 of £17.8m (2014: £8.2m).

Operational Review

United Kingdom and Ireland

Revenue in the UK and Ireland increased by 2.4% to £116.9m (2014: £114.2m) and gross profit increased by 7.1% to £19.0m (2014: £17.7m). Operating profit increased strongly by 9.5% to £2.1m (2014: £1.9m).

Strong results were reported from Scotland and the new UK regional locations of Newcastle and Bristol made their first positive contributions. In London, significant growth was generated from Finance and Banking, which was mitigated by weaker results from Oil & Gas. Contract demand for technology specialists was robust as the acute skills shortage continued.

While results from the senior interim business were improved on the prior year, the UK election impacted demand for permanent executives in the first quarter in Local Government, Education, and Healthcare (NHS). However, the Healthcare market is returning to normal with net fees for the half year up by 8.6% and increased demand for international mandates.

In Ireland, gross profit increased by 9.3%1, led by demand for finance professionals and technology specialists for Dublin-based US multi-nationals, and an improved performance from the recently opened office in Cork.

Mainland Europe

On a constant currency basis, both gross profit and operating profit2 increased in mainland Europe. Revenue in mainland Europe decreased by 2.6%1 while gross profit increased by 4.9%1, indicating improved profitability due to a change in mix in favour of higher margin contracting. Operating profit was 4.2%1 higher.

Operating profits rose in Central Europe with increases in Switzerland, Poland and Germany. Gross profit in Germany was 29.4%1 higher, due to the increasing demand for flexible technology and engineering labour and a significant rise in permanent recruitment, with placements more than doubling on the prior period as business confidence improved.

In the German outsourcing business, revenue for the period was £8.5m, representing a 6.4% decline on a constant currency basis, producing gross profit of £1.7m (2014: £2.2m) and a loss of £0.2m2 (2014: £0.1m). As a result, further restructuring is being undertaken in the legacy telecoms outsourcing services business in the second half of the year to reduce costs in line with revenues.

In the innovations business, software development totalling £1.1m (2014: £0.7m) was capitalised in relation to the ongoing development of a vehicular small cell solution for the German automotive industry. Key milestones in support of the policy of capitalisation were achieved. The process of reviewing all options for the future of the German outsourcing business is progressing.

The performance of the Group’s operations in the Benelux was steady with revenues decreasing by 1.9%1 and gross profit unchanged from the prior year1. Challenging market conditions in the Netherlands and reduced margins for managed services across the Benelux held back overall gross profit. Additional investment for growth in Belgium reduced the short-term contribution in Antwerp and Brussels. However, demand for permanent placements increased during the period. The process of closing the French executive search office, which began in the prior year, finally completed during May 2015.

In the Nordics, revenue increased by 15.9%1, whilst gross profit improved by 6.7%1 and operating profit doubled1 albeit from a low base. Due to the devaluation of the Swedish krona and Norwegian kroner, reported revenue and gross profit were down by 3.8% and 8.6% respectively, although operating profit rose on a reported basis.

The Group’s business in Sweden continued to grow, further consolidating its market leading position in senior and professional recruitment and leadership services, with 15.2%1 growth in gross profit. Good permanent recruitment activity facilitated a 22.2% increase in fee earners, particularly in the smaller locations such as Finland and Norway. Following the restructuring of the business in Norway last year, the loss in the period was significantly reduced.

1 On a constant currency basis which is calculated by re-translating current year figures at prior year rates.
2 Stated before non-recurring costs of £0.4m relating to the strategic review of the German outsourcing business.

Rest of World

In the USA, favourable market conditions and strong demand for technology professionals enabled a significant uplift in revenue of 21.3% to £26.9m (2014: £22.1m), with gross profit increasing by 34.8% to £7.2m (2014: £5.3m) and operating profit by 60.9% to £0.8m (2014: £0.5m). Permanent placement revenues improved by 19.9% on the prior year, while gross profit from contracting and outsourcing grew by 51.3% and 36.4% respectively. The Group’s investment in fee-earning capacity continued, rising by 13.9%, leveraging the strong trading conditions.

The Group’s fastest growing geographic region was Asia Pacific where revenue increased by 77.7% to £4.3m (2014: £2.4m). This was driven by senior executive recruitment in Hong Kong and Japan, an encouraging start in the new Singapore office and continued strong trading in Vietnam. In Vietnam, the recruitment business reported an increase in permanent revenues of 15.9%. In Australia, a focus on productivity and costs partly mitigated the 16.8% decline in gross profit against the prior period. This was due in part to the weakening Australian Dollar but mainly the challenging operating conditions experienced in the first quarter. In aggregate, Asia Pacific increased gross profit by 50.2% to £2.5m (2014: £1.7m) and reduced the overall loss by 60.0%


The Board has approved the payment of an interim dividend of 1.49p per share (2014: 1.36p), an increase of 9.6%. This will be paid on 20 November 2015 to shareholders on the register as at 23 October 2015.


The Group has continued to drive growth in the first half of the year, in both established markets such as the USA, UK, Germany and Sweden and many of the new geographies. The performance of Asia Pacific was particularly encouraging with mainly organic growth in revenues and the successful establishment of the Group's brand and services in that region.

The Board is pleased with the Group's overall adjusted operating profit for the six months which has been in line with management’s expectations, and since 31 July 2015 this has continued to be the case. Since the end of the first half, global macro-economic uncertainty has increased, notably with respect to China, and currency headwinds continue. However, the Board remains positive about the outlook for the remainder of the financial year, reflecting the strong market position of our businesses and the positive trading momentum to date across the Group.

Julie Baddeley
30 September 2015