Trading update and disposal
The Board of Harvey Nash announces a trading update and the disposal of Nash Technologies GmbH.
Trading for year to date is in line with the Board’s expectations. For the nine months to 31 October 2015 both gross profit and PBT, adjusted for non-recurring items, increased by 7% (10% on a constant currency basis) against the comparable period in 2014. This performance has been driven by strong trading in the USA and Germany, solid results from the UK and progress in Asia.
Despite the third quarter being seasonally the strongest trading period in the year, net borrowings at 31 October were similar to the net balance at 31 July 2015 stated in the half yearly results.
The Group announces that the sale of its 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") was completed on 6 December 2015.
NT Group was identified as non-core in a strategic review of the Group’s operations in 2014 and a disposal process was initiated. On 30 September 2015, the Group reported that the revenues of this business had declined further, as a result of the merger involving its largest client, Alcatel-Lucent, and that the business was loss making.
Following a full review of the disposal options, the Board has agreed the sale of NT Group to Udo Nadolski, Chief Executive Officer of NT, by way of a management buyout (the "Buyer").
The disposal will have no effect on the Group’s core recruitment business in Germany, which is trading strongly with gross profit for nine months to 31 October 2015 up 18% to €5.6m (2014: €4.8m) and business contribution (before shared services) up 69% to €1.3m (2014: €0.7m).
Albert Ellis, CEO of Harvey Nash, said:
“This transaction provides a clean exit from a non-core loss making activity and lowers the Group’s financial risk profile, whilst retaining upside potential from any future success of the NT Group. We wish the management team every success with its venture.”
The aggregate consideration from the disposal of the NT Group payable at completion is €27,600 (£19,876) with the Buyer assuming working capital liabilities capped at €2.3m (£1.7m). In addition, the Buyer has agreed to pay additional cash consideration to Harvey Nash by way of earn-out, based on the performance of the NT Group, subject to a maximum aggregate amount of €9.0m (£6.5m) plus the amount of restructuring and other costs borne by Harvey Nash as described below.
In respect of certain restructuring and other costs to be borne by the NT Group, Harvey Nash has agreed as follows:
- to indemnify the buyer in relation to certain liabilities of NT Group up to a maximum of €5.75m (£4.1m) (net excluding VAT). These are anticipated to be incurred over the next nine months; and
- to provide a loan to the NT Group of €2.3m (£1.7m) (net excluding VAT) in respect of product investment and property costs.
The Buyer has also agreed that, should it dispose of the NT Group prior to 31 December 2022, it shall pay Harvey Nash up to the first €2.3m (£1.7m) of any net proceeds arising from such disposal, in satisfaction of any outstanding amount of the loan by Harvey Nash to the NT Group (as described above) and shall pay 50% of any proceeds in excess of such amount to Harvey Nash, subject to the overall aggregate cap of €9.0m (£6.5m) set out above.
As at 31 January 2015, the gross assets of the NT Group were approximately €11.8m (£8.8m) and, during the financial year ended 31 January 2015, the NT Group made a loss before non-recurring items and tax of €0.4m (£0.3m).
Excluding the effect of the earn-out or the share of any future disposal proceeds, the one off exceptional charge on disposal falls into two parts: (1) the non-cash loss of €8.6m (£6.2m), representing the difference between the net book carrying value of the NT Group and the net cash initial proceeds, and (2) the future cash commitments, capped at €5.75m (£4.1m). Associated demerger costs (legal, advisory and shared services) will be quantified and reported in due course.
In accordance with the Listing Rule 11.1.6(2) the requirements of Listing Rule 11.1.7 to 11.1.20 do not apply to the transaction.
Albert Ellis, CEO
Richard Ashcroft, CFO
Tel: 020 7333 2635
Tel: 020 7796 4133